Slovenia's NLB eyes strategic entry to Croatia with Addiko Bank purchase

The potential acquisition of Austria-based Addiko Bank AG would give Slovenia's Nova Ljubljanska Banka dd a foothold in Croatia and accelerate the implementation of its new strategy.

Nova Ljubljanska Banka (NLB) officially launched the offer on June 7, targeting at least 75% of Addiko Bank shares. If successful, the acquisition could increase NLB's total assets and its deposit and loan portfolios by nearly a quarter, according to S&P Global Market Intelligence's calculations.

Given Addiko's strong presence in former Yugoslavia states, the acquisition would strengthen NLB's presence in the region and provide NLB with a strategic entry into the Croatian market, enhancing its position as a leading regional bank, Lojze Kozole, an analyst at Slovenian brokerage company Ilirika, told Market Intelligence.

NLB's offer of about €390 million, or €20 per Addiko share, represents a price-to-book multiple of 0.47x, Croatian brokerage company InterCapital said in a May 16 note. The move is in line with NLB's strategy of executing undervalued M&A deals in the last few years and would help the Slovenian lender achieve its recently announced 2030 business strategy, according to InterCapital.

NLB's entry into Croatia would allow the bank to service Croatian clients and support international clients working in the largest former Yugoslav economy, an NLB spokesperson told Market Intelligence.

In a presentation, NLB indicated that the indirect acquisition of Addiko's Croatian business via the Austria-based parent would give NLB the eighth spot in Croatia's banking sector with a 2.8% market share by total assets.

NLB has not been able to enter Croatia's banking sector to date due to a Yugoslav-era deposit dispute between Slovenia and Croatia involving NLB's predecessor.

Securing approval from Croatian regulators is critical for the deal, given that Croatian operations make up 40% of Addiko's balance sheet, according to NLB executives.

Without the approval of Croatian regulators, "there is no deal," NLB CEO Blaž Brodnjak said at a June 10 call with analysts. "Without Croatia, it is for us a different value proposition."

Croatia accounts for 8% of Slovenia's exports and many of NLB's corporate customers are active in Croatia, according to the bank. After the 2020 dip caused by the COVID-19 pandemic, Croatia's GDP growth picked up in 2021, although the growth rate slowed down in 2023 to just over 3%, according to Market Intelligence data. For 2024 and 2025, real GDP growth in Croatia is expected to exceed 2.7%.

– Access Croatia's economic and demographic data on S&P Capital IQ Pro. – Access M&A data using the screener tool. – Access financial highlights for Nova Ljubljanska Banka and Addiko Bank on S&P Capital IQ Pro.

Potential synergies

The potential takeover of Addiko would also bolster NLB's already strong positions in Slovenia and Montenegro and improve market positions in Serbia and the Federation of Bosnia and Herzegovina. The Federation of Bosnia and Herzegovina is one of the entities forming Bosnia and Herzegovina, along with Republika Srpska.

In addition, the takeover would help NLB grow in the retail lending segment, Gunter Deuber, managing director, chief economist and head of Raiffeisen Research, told Market Intelligence.

NLB disclosed in its June presentation that 50% of Addiko's gross performing loans portfolio consists of consumer loans, while 38% consists of loans to small and medium-sized enterprises.

"We have been monitoring Addiko Bank for quite some time before launching the offer and always saw it as complementary to our retail and SME business segments," NLB's spokesperson wrote in an email to Market Intelligence.

With the deal, NLB would also broaden its customer base and tap new talent and digital know-how that comes with Addiko, according to Ilirika's Kozole.

The transaction would significantly accelerate the implementation of NLB's 2030 strategy, raising the bank's pro forma assets by €6 billion to over €32 billion after the potential closure of the deal in 2025.

Under the strategy, which was unveiled before NLB announced its offer for Addiko, the Slovenian lender wants to double its assets to €50 billion by 2030, with €5 billion to €6 billion in asset growth to come from potential M&A deals, and the remaining part to be contributed by organic expansion. "[The acquisition] fast-forwards the whole thing. It adds to high probability of us delivering the strategy," Brodnjak said during the June call with analysts.

NLB also wants to more than double its recurring revenues and profits under the strategy and increase its dividend payout ratio from 40% to about 60%. The planned acquisition of Addiko would not have a material impact on dividend plans, NLB executives said during the call.

The potential takeover of Addiko will be earnings-accretive from 2027, NLB disclosed in its presentation.

While Addiko's takeover would speed up the implementation of the strategy, it is not imperative for the strategy's success, according to analysts.

"NLB's 2030 strategy targets, while ambitious, are achievable even without acquiring Addiko Bank," Ilirika's Kozole wrote in an email.

Many consolidation activities are taking place in central and southeast Europe, so other options may arise for NLB if the Addiko takeover is unsuccessful, according to Raiffeisen Research's Deuber.

NLB is not the only company interested in Addiko Bank. Agri Europe Cyprus, a company owned by Serbian businessman Miodrag Kostić, already holds a 9.99% stake in Addiko and published a takeover offer in May for an additional 17% of the bank at €16.24 per share. Alta Pay Group, owned by Serbian businessman Davor Macura, announced in April that it has agreed to acquire an approximately 30% stake in Addiko and has applied for permission to become the largest shareholder.

NLB is potentially the most credible buyer for Addiko, according to Deuber. There is a fair chance that NLB may get the mandate and relevant regulatory approval to acquire Addiko, and it has the leeway to top up the offering, he noted. "Not so sure how credible the other potential buyers are seen in regulatory circles ... NLB looks like a 'real buyer' for the asset," Deuber wrote in an email.

NLB's offer of €20.00 per Addiko share implies a 22.15% premium to Addiko's six-month volume-weighted average share price of €16.37 from before the offer was announced. Addiko shares gained almost 39% since the beginning of 2020, with the bulk of the growth occurring in the last few months of 2024 amid heightened interest in the bank from potential buyers. Since the beginning of 2024, the shares gained almost 45%.

NLB shares gained more than 100% since the beginning 2020 and 46% year to date as of June 21.