RIYADH — National Commercial Bank (NCB) and Samba Financial Group both announced the signing of a framework agreement Thursday to begin due diligence process, and negotiate definitive and binding terms of a possible merger.

NCB said “it entered into a Framework Agreement on June 25, 2020 with Samba Financial Group in order to begin a reciprocal due diligence process and to negotiate definitive and binding terms of a potential merger of NCB and Samba Financial Group (the “Proposed Transaction”).”

The parties have also agreed in the Framework Agreement that they will negotiate definitive agreements in relation to the Proposed Transaction that will set out the relevant commercial terms thereof, including (without limitation):

(i) the final structure of the Proposed Transaction, (ii) the final exchange ratio, (iii) the name of the merging bank and the approach to its branding, (iv) the composition of the board and the parties’ approach to the management of the merging bank, and (v) the location of the head office of the merging bank.

The Framework Agreement also includes customary provisions that regulate confidentiality, exclusivity, restrictions on trading and other related matters.

Completion of the Proposed Transaction will be subject to various conditions including, but not limited to, approval of the Saudi Arabian Monetary Authority, the Capital Market Authority, the General Authority for Competition and the shareholders of each of NCB and Samba Financial Group in accordance with applicable legal requirements.

NCB has appointed J.P. Morgan Saudi Arabia Company as its financial advisor, and Abuhimed Alsheikh & Alhagbani Law Firm as its legal advisor, in connection with the Proposed Transaction.

Samba has appointed Morgan Stanley Saudi Arabia as its financial advisor, and Khoshaim & Associates as its legal advisor, in connection with the Proposed Transaction.

Shareholders of Samba will receive between 0.736 and 0.787 newly issued share of NCB in exchange for every share they hold in Samba, subject to the results of the reciprocal due diligence exercise.

The two banks, as advised by their respective financial advisers, reached this range by performing financial analysis using a comprehensive and widely used set of valuation methodologies. The final exchange ratio will be determined in the definitive agreements of the proposed transaction.

At a closing share price of SR37.25 per NCB share on June 24, the proposed deal, if completed within that range, would value each Samba shares at SR27.42–SR 29.32, representing a premium of 19.2%-27.5% to Samba close price on June 24.

The parties intend to conclude the reciprocal due diligence process and sign the definitive agreements within 4 months from the date of this announcement.

NCB does not expect that the proposed merger will result in the involuntary redundancy of employees.

The proposed deal involves related parties and directors who have a conflict of interest in relation to it, which will be assessed by NCB for the purpose to ensure compliance with the relevant rules and regulations. The details of all related parties and conflicted directors will be announced at a later stage.

In December 2019, the board of directors of NCB and Riyad Bank agreed to back out of their merger negotiations, which started at the end of 2018.

Earlier, the Saudi Stock Exchange (Tadawul) suspended trading on shares of NCB and Samba Financial Group for one trading session. The suspension, which comes in accordance with the listing rules, was requested by both banks to disclose a material event.

Trading on shares of both banks will resume on Sunday, June 28, Tadawul added.

The two banks are hoping to create a combined entity with almost $214 billion in assets, two sources familiar with the matter told Reuters.

If completed the merger would create one of the region’s largest lenders by assets, ranking third after Qatar National Bank (QNB) and UAE’s First Abu Dhabi Bank (FAB.AD), Refinitiv data shows.

NCB is Saudi Arabia’s largest bank by assets and has a market value of nearly $30 billion, more than double that of Samba, which valued at $12.3 billion.

Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF) is a major investor in both banks, with a stake of 44.29% in NCB and 22.91% in Samba.

In 2018, Saudi British Bank (SABB) and Alawwal Bank agreed to merge in the first major tie-up for the country’s banking sector in recent times.

The move came as a wave of bank mergers swept the Gulf region, starting with a combination of United Arab Emirates’ biggest banks that created First Abu Dhabi Bank in 2017. — Agencies