CaixaBank has agreed to take over its state-owned rival Bankia valuing the business at €3.8bn ($4.5bn), which will create the biggest bank in Spain.
The board of directors of both the banks has approved the merger.
Under the deal terms, Bankia investors will receive 0.6845 shares in CaixaBank for each share held.
This represents a 20% premium over the exchange ratio as of 3 September 2020, before the banks were exploring a merger.
In total, investors will receive 2,079,209,002 CaixaBank ordinary shares in exchange.
Barcelona-based CaixaBank operates 3,846 branches and employs 35,000 people in Spain. It has a market value of €12.4bn.
Mortgage lender Bankia operates 2,267 branches employs 16,000 people. Its market value is nearly €4.4bn.
The takeover creates a new entity with a combined market value of about €16.8bn ($19.8bn).
The new bank will have $786.7bn in total assets, with a 25% market share in loans and 24% in deposits.
It will retain the CaixaBank brand and serve more than 20 million customers in the country.
CaixaBank will own a 74.2% stake in the new business, while Bankia will own 25.8%.
In a statement, Bankia chairman Jose Ignacio Goirigolzarri said: “With this operation, we will form the principal Spanish franchise at a moment when it’s more necessary than ever to create entities with a critical size.”
Goirigolzarri will be the executive chairman of the combined bank, while CaixaBank CEO Gonzalo Gortazar will retain his position.
Gortázar said: “The merger will allow us to face the challenges of the next 10 years with greater scale, financial strength, and profitability, which will result in greater value for our shareholders, more opportunities for our employees, better service to our clients and a greater capacity to support Spain’s economic recovery.”
Caixa Foundation’s fully-controlled entity CriteriaCaixa will be the biggest shareholder in the new entity with a nearly 30% stake.
The Spanish government-owned Fund for Orderly Bank Restructuring (FROB), which is already a majority shareholder in Bankia, will hold a 16.1% stake.
Subject to shareholders and regulatory approvals, the takeover is expected to complete in the first quarter of 2021.