Landsbanki pays €41m for extra 17% stake in Merrion

ICELANDIC BANK Landsbanki has paid about €41 million for an additional 17 per cent stake in Merrion Landsbanki, bringing its total investment in the stockbroker up to almost €90 million for an 84 per cent share.

The final sale price of the stockbroker is expected to be somewhere between € 100 and € 130 million when the remaining 16 per cent is sold early next year.

According to Landsbanki's half-year accounts to June 30th, 2008, it increased its share in Merrion last February to 84 per cent by acquiring an additional 17 per cent of the stockbroking firm for 4.03 billion Icelandic kronur in cash. At the time, this deal would have been worth about € 41 million to the shareholders of Merrion, almost € 10 million more than it would have been worth yesterday, due to the sharp depreciation in the value of the Icelandic kronur over the past few months.

The transaction follows Landsbanki's acquisition, in February 2007, of a 16 per cent share in Merrion for IsK1.68 billion (valued at about € 19 million at the time). When combined with the bank's initial offer of IsK2,100 million (€ 27.65 million) for a 50 per cent stake in Merrion back in November 2005, it brings Landsbanki's total investment up to about € 88 million for an 84 per cent share.

The latest offer illustrates Merrion's rise in value over the past three years. Landsbanki first bought 50 per cent of Merrion in November 2005 on the basis that it would purchase the remaining 50 per cent over the next three years on an earn-out arrangement, dependent on Merrion's profits over the three years after the takeover.

In 2005, Merrion recorded profits of some € 8 million, but the following year the stockbroker trebled its profits to €24 million, increasing them again in 2007 to €25.5 million, thereby hiking up the value of the company. Landsbanki's latest payment for a 17 per cent share is worth almost double in Icelandic kronur what the bank initially paid for a 50 per cent stake in the stockbroker.

Under the terms of the original deal, the bank must now purchase the remaining 16 per cent share of Merrion by March 2009. The remaining shares are owned by staff and by New York-based investment bank Allen & Co.