REFILE-UPDATE 2-Raiffeisen says free float to drop in RZB merger

By Eva Komarek

VIENNA, April 19 (Reuters) - Minority owners of Austria's Raiffeisen International bank will be diluted slightly more than previously planned in the merger with Raiffeisen parent RZB, the lender said on Monday.

Uncertainty about the merger and an accompanying share issue have been the main reasons why investors have shunned Raiffeisen shares since the deal was first announced in February, analysts said.

While it has gained back some ground, the shares closed on Monday at 35.94 euros, 10 percent lower than before the deal was announced.

Raiffeisen, the second biggest bank in emerging Europe, said in a statement the free float in the combined bank will drop to 21.2 percent to 22 percent from a current 27 percent when the deal to remerge it with its parent is completed.

The shareholders of unlisted RZB, mostly regional cooperative banks, will accordingly hold 78 percent to 78.8 percent of the combined company, to be called Raiffeisenbank International, up from 73 percent in Raiffeisen now.

An internal memo presented to large RZB stakeholders that had detailed the planned deal and was obtained by Reuters in February had forecast a dilution to 23 percent. Auditors have worked on the underlying valuations since then.

Earnings per share, if calculated pro-forma for the merged companies 2009 accounts, would have been higher for the minority shareholders despite the dilution, because RZB in 2009 had a higher profit than Raiffeisen.

But a massive increase in bad debt charges in the former Communist part of Europe has made 2009 an exceptional year for Raiffeisen. Analysts expect this business to return to higher growth and better profit margins than the domestic business it will acquire by merging with parent RZB.









CAPTAL NEEDS

Raiffeisen's and RZB's managements reiterated the rationale for the deal: giving RZB access to equity markets.

While they did not say when they would make use of that access, most analysts expect the group will have to raise the equity to repay state aid by 2013 and meet upcoming Basel 3 bank capital standards.

Analysts' estimates of the equity needed range from 1.5 billion euros to 4.6 billion euros, depending on the final shape of Basel 3 and on Raiffeisen's earnings and asset growth.

Previously, RZB was funded by its own shareholders and tapped equity markets indirectly via Raiffeisen. But the amount that will be needed over the next few years is too big to continue with this model, analysts say.

In the memo, RZB's management warned that it may have to sell all of Raiffeisen if the deal failed.

Raiffeisen's annual general meeting is planned for July 8. The company said documents on the merger required for the vote, including the final valuation of RZB and Raiffeisen will be made publicly available on May 30.

(Reporting by Sylvia Westall and Eva Komarek, writing by Boris Grendahl in Miami, editing by Leslie Gevirtz) Keywords: RAIFFEISEN RZB/ ([e-mail]; Vienna Newsroom: [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.