November 28, 2017 / 2:07 PM / a year ago

UPDATE 1-Israel's Mizrahi-Tefahot to buy Union Bank for $400 mln

(Adds analyst comment, updates share price)

By Steven Scheer

JERUSALEM, Nov 28 (Reuters) - Mizrahi-Tefahot Bank , Israel’s third-largest lender, has agreed to buy smaller rival Union Bank of Israel for around 1.4 billion shekels ($400 million) in shares to better compete with the country’s top two lenders.

Shares in Union, the country’s sixth-largest bank, rose 5.1 percent following news of the deal on Tuesday, while Mizrahi-Tefahot’s were up 2.5 percent. The companies did not give a price per share for the deal.

Under the terms, Mizrahi-Tefahot will buy the 75 percent held by Union’s controlling shareholders including Yeshayahu Landau and Shlomo Eliyahu Holdings. It will seek to buy the remaining 25 percent through an offer to the public.

The agreement is subject to regulatory approval as well as reaching a deal with Union employees on an efficiency plan.

Many bank employees have been protesting since Mizrahi-Tefahot - Israel’s biggest mortgage lender with a market value of 14.4 billion shekels - announced it was in talks with Union in July, fearing job losses.

Mizrahi Chairman Moshe Vidman and CEO Eldad Fresher said this would be one of the most significant transactions in the Israeli banking sector in years.

“It will significantly improve Mizrahi-Tefahot’s ability to compete with the large banks,” they told a meeting of the board, according to a statement from the bank.

Israel’s banking system is dominated by Hapoalim and Leumi, which together hold a market share of around 60 percent. The Bank of Israel has for years pushed for a third large bank to compete.

Media reports have said Union’s workforce of around 1,200 would likely be halved following the deal and most of its 36 branches closed, though the companies have declined to comment.

Citi analyst Michael Klahr said he expected voluntary retirement programmes to cost up to 500 million shekels, but that hurdles remained, including reaching a deal with Union’s workers.

“The banks supervisor has publicly voiced her support for the deal but the anti-trust commissioner may face pressure from politicians not to give her approval to the deal ... on the grounds that it will reduce competition in the local banking sector,” Klahr said. “In any case we expect the ... process to take up to nine months.”

$1 = 3.5001 shekels Reporting by Steven Scheer; Editing by Louise Heavens and Mark Potter

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