Shareholders of Czech lender Moneta Money Bank have failed to back the proposed CZK 25.9bn (€1bn) merger deal with Czech investment group PPF’s online bank Air Bank.

At an extraordinary general meeting on June 22, a majority of shareholders supported the merger but less than 75% backed the share issue to finance it. The vote marks the second defeat of PPF’s drive to build a Czech-owned banking group by merging with Moneta and will now force it to change the structure of the deal or sweeten its bid, or put its plans on hold for the time being.

The merger, which was backed by Moneta’s management, would have created the third largest bank in terms of customers and the largest Czech-controlled lender. Moneta ranks sixth in terms of assets and Air Bank eighth.

Moneta’s share-based acquisition of PPF’s Czech and Slovak financial assets would have led to the de facto reverse takeover of Moneta by PPF, because of PPF's existing 30% stake in Moneta following a share offer in the spring. After the issue of new shares to PPF for its assets, the privately owned financial group would have controlled around 55.4% of Moneta.

At the EGM, 61.9% of shareholders voted in favour of the merger (when only a 50% majority was required) but only 61.7% voted for the issue of new shares to PPF for its assets when a 75% majority was required.

Moneta issued a press release after the EGM saying: “The acquisition of 100% shares in Air Bank a.s., Home Credit a.s. and Home Credit Slovakia a.s. by Moneta Money Bank, a.s. cannot be realised based on the share purchase agreements approved under item 3 of the agenda of today’s general meeting.”

But both Moneta and PPF indicated that they still hoped to find a way to make the transaction work.

Moneta CEO and chairman Tomas Spurny commented: "Most shareholders expressed their agreement with the vision to create a strong Czech champion for sole traders and small clients. We believe we will find a way of obtaining the necessary support and complete the transaction."

PPF commented that the vote showed the “consent of Moneta shareholders to the acquisition of assets in the Air Bank Group, confirmed the agreed valuation of these assets and also confirmed that most existing Moneta shareholders support the plan to merge Moneta with Air Bank and the Czech and Slovak Home Credit”.

Hedge fund Petrus Advisers, which claims to hold 5% of Moneta, had criticised the proposed transaction for amongst other things overvaluing Air Bank and the other assets in comparison to Moneta. Air Bank was valued at 2.5 times book value, while Moneta was valued at only 1.5 times book. PPF argues that the relative valuations derive from the internet bank's greater profitability and growth potential.

Proxy advisers Glass Lewis and Institutional Shareholder Services had also questioned the specifics of the transaction and recommended that shareholders vote against.

Under the terms of the proposed deal, PPF would sell Air Bank for CZK21.32bn, consumer lender Home Credit Slovakia for CZK 751.1mn and Czech consumer lender Home Credit for CZK3.83bn. PPF would be paid mostly in newly issued shares and then launch a mandatory offer for the remaining shares, though it said it wanted to keep a significant free float.

PPF, whose founder Petr Kellner died in a helicopter crash in March, is not expected to give up on Kellner's long-term ambition to build a Czech banking empire and is likely to continue to pursue Moneta.

In an article in Czech daily Hospodarske noviny on June 21, PPF CFO Katerina Jiraskova wrote: “PPF is used to overcoming obstacles. We know very well that ‘there is never only one path to a goal’, and we can flexibly choose scenarios for achieving our goals. This is undoubtedly true in this case as well.”

Jiraskova emphasised that the Czech Republic lacks a strong domestically-owned lender. The radical rightwing governments in neighbouring Poland and Hungary have launched drives to build  (mainly state-) owned domestic lenders after the privatisation of most of their banking assets over to foreign banking groups after the collapse of communism.

“The vision has always been to make Air Bank a banking house based on domestic capital so that, like national banking leaders in other European countries of similar size, it can support the domestic economy and its growth,” she wrote. “We want to build a new major player with a capital base on the domestic banking market, whose roots are in the Czech Republic, but which can also conquer other markets.”

PPF claims that 70% of Czech banking sector net profit is shared out among the top five (foreign-owned) banks. Jiraskova argued that Moneta and Air Bank need to combine to face this challenge.

“Due to the increasing demands on regulation, it will be increasingly difficult for small and medium sized banks to offer the best services and products, all the more so in competition with the rapidly growing international fintech platforms,” she wrote.