Wellington Management, the Boston-based investment giant and potential kingmaker in Austrian bank Bawag’s planned €1.62 billion takeover of PTSB, is happy to keep the market guessing as to how it will cast its vote before a crucial extraordinary shareholder meeting (EGM) next Thursday on the deal. The investment firm, which holds a 6.87 per cent stake in PTSB, stoked intrigue in a stock exchange filing last week showing that more than a quarter of Wellington’s shares in PTSB had been traded internally at €3.01 per share – 4 cents above the €2.97-a-share offer price agreed by Austrian bank Bawag in April. The move has fuelled speculation that at least some in Wellington – or clients of the firm – believe Bawag may need to increase its offer to secure ownership of the State’s smallest remaining domestic retail bank. It’s also prompted chatter that not all the shares held by Wellington accounts will come down on the same side at the EGM. The firm declined to comment. PTSB’s takeover deal is structured as a scheme of arrangement, overseen by the High Court, which requires at least 75 per cent approval from voting shareholders. The Government’s 57.5 per cent stake, pledged to vote for the sale, carries extra weight when considered against the fact that more than a fifth of shareholders haven’t bothered to vote at its annual general meetings in recent years. On that basis, it looks like a done deal. However, the court could yet rule that the transaction requires separate approval from minority shareholders – even if the bank is said to have robust legal advice that only one vote is necessary, as the Government is exiting with other investors. [ Bawag builds up funds for PTSB deal ahead of crucial vote ]If a majority-of-the-minority count is required, the odds of the deal getting over the line lengthened this week when it emerged that Glass Lewis, the second-largest international advisory firm to institutional investors, has recommended clients reject the deal.Glass Lewis, as first reported by The Irish Times, said the bid looked “increasingly tenuous” amid opposition from some shareholders and a surge in European bank stocks since PTSB’s chief executive Eamonn Crowley announced the bank was on the market last October.“There does not appear to be sufficiently compelling cause for investor support at this time,” Glass Lewis said. By contrast, Institutional Shareholder Services (ISS), the most influential proxy advisory player, advised this month that shareholders back the sale, saying it would be hard to argue PTSB could have achieved much more, even though the price – set at about a 20 per cent discount to value of the bank’s assets at the end of 2025 – was “understandably disappointing”.Glass Lewis noted that businessman Eamon Waters’s Sretaw investment vehicle, the owner of about 7.2 per cent, had expressed disappointment with the proposed terms. While Sretaw had come out in March against an indicative offer from Austria’s fourth-largest bank that was about 4 cent off the final deal, it has not commented on the actual agreement. The report also highlighted that London hedge fund Samson Rock Capital, owner of about 3.1 per cent of the bank, has reportedly encouraged other PTSB investors to reject the sale.It is understood that Samson Rock, one of a number of merger arbitrage funds that have piled into PTSB since the sale agreement was announced, has already voted against the deal. While such specialist investors typically aim to make money from the gap between an agreed purchase price and where shares are trading in the market, market sources say recent trading activity suggest that a number of them are angling for a better price. PTSB shares have been consistently trading above the €2.97 offer price for the past four weeks, at as high as €3.03. The narrative has been fuelled by the fact that euro zone banking stocks have soared since PTSB was put up for sale, with momentum accelerating since the deal. The Euro Stoxx Banks Index has jumped 16 per cent since the eve of the April 14th announcement – bringing total gains since late October to more than 31 per cent. The €2.97-a-share price for PTSB marked a 26 per cent premium to its “undisturbed” price before news emerged that it was up for sale. More uncomfortably, Bawag’s market value has jumped 64 per cent to €13.5 billion over the same period – including spikes in January, when investment bank UBS did a meaty report highlighting the merits of an Irish deal, and, again, in March when Bawag confirmed it was in the running. Its value has also run up 24 per cent since mid-April, outperforming euro zone banks by a third, as analysts of the Vienna-based bank have praised the deal. The outperformance almost equates to about €900 million being added to Bawag’s market capitalisation. UBS analyst Mate Nemes said in a note this week that locking in PTSB at the EGM on July 30th is a “potential next catalyst” for Bawag’s stock as he upgraded his price target for the shares to €1.98 apiece, pointing to a further 13 per cent upside from here. “We think Ireland’s third largest bank, PTSB, fits Bawag’s playbook given low profitability and poor efficiency, leaving scope for cost take-out, profitability uplift and possible capital optimisation,” Nemes said.A subscale business – even after PTSB increased its balance sheet by 50 per cent between 2022 and 2023 by purchasing Ulster Bank loans – and relatively high running costs left the bank with a cost-to-income ratio of 75 per cent last year. AIB and Bank of Ireland reported ratios of 44 per cent and 49 per cent respectively last year, while Bawag’s was 36.1 per cent.Bawag said on Tuesday – as it reported its financial results for the first half of the year – that it had accumulated more than €1 billion of excess capital, more than enough to self-fund the acquisition of PTSB. It said it remained “incredibly excited” about the opportunity.The remainder of the €1.62 billion cost of the acquisition will come from PTSB itself, including the Irish bank’s surplus capital and the ability of Bawag to book an immediate profit from the deal agreed in April. PTSB’s capital position was given a €130 million boost in January when the Central Bank of Ireland allowed it to ease the risk profile of its mortgage book for the purposes of setting aside reserves for potential loan losses. But the real long-term capital benefit will come from loans written under the new so-called internal ratings-based (IRB) model. The Bawag deal values PTSB at an almost 20 per cent – or €400 million – discount to its reported end-2025 net assets, opening up the prospect for the difference being booked as a negative goodwill, or badwill, gain.Bawag, previously best known in Irish financial circles for buying the remnants of Dublin-based Depfa Bank in 2021 and acquiring mortgage start-up MoCo two years later, sees the PTSB deal boosting earnings per share (EPS) by 20 per cent by 2028. That is without even factoring in potential income growth.Patrick Brennan, founder of California-based Brennan Asset Management, which built up a 1.9 per cent stake in PTSB between 2020 and 2022, said it was “deeply disappointing to see a deal where Bawag is buying this on the cheap”.“This is going to be 30-35 per cent EPS accretive for Bawag over time. If PTSB had just waited another year [to sell itself], until at least the market understood how it benefited from the new IRB models, there could have been a much better outcome,” he says. Brennan had considered trying to lead an activist campaign against the deal, but could not see a scenario where it could achieve a meaningfully higher price that would justify the effort for its investors. The firm sold most of its stake in early May, but retains a holding. Its founder declined to say which way those shares will be voted at the EGM. Unlike the ongoing takeover situation at Dublin-based DCC, where major long-term investors including Fidelity International (FIL), Aviva Investors and the company’s founder, Jim Flavin, have publicly opposed the bid from US private equity firms KKR and Energy Capital Partners, PTSB’s deal has faced no public challenge from its institutional investors.A spokesman for FIL – which has disclosed a joint 2.9 per cent PTSB stake with one-time sister company FMR – declined to comment on the deal. PTSB’s financial advisers in Goldman Sachs carried out “an extensive global outreach to solicit possible offers for PTSB to a wide range of potential buyers, including financial institutions, strategic investors and financial sponsors”, it was stated in documents published by the bank in April. Sources said more than 100 parties were contacted. It secured six indicative proposals in early February, with the field narrowing to three by late April. This is known to comprise Bawag, a consortium of US investment firms Centerbridge and Sixth Street Partners, as well as Texas-based Lone Star Funds. Bawag emerged as the winner. The final offer from Centerbridge and Sixth Street, the only other group in the process at the end, amounted to an upfront €2.93-per-share bid, according to sources. It also included the possibility of additional payments totalling seven cents per share to PTSB shareholders over a two-year period.Goldman Sachs was unable to assign any value to this contingent element of the bid, the sources say. That is because it was dependent on the consortium being able to extract a significant amount of excess capital from the bank, which would require Central Bank approval and carried a high level of uncertainty.“The transaction is the result of an extensive process, and it would be hard to argue that there are potential bidders out there willing to pay a materially higher price,” Institutional Shareholder Services said. “The outcome of the process is understandably disappointing, as it doesn’t seem to account for a control premium.”However, Glass Lewis placed more emphasis on the ultimate price than the process. It noted PTSB’s management had been upbeat about the bank’s prospects, saying in the deal announcement that it was “well positioned to continue delivering sustainable commercial and profitable growth”, had launched a refreshed business strategy in March and was benefiting from a favourable domestic economic backdrop.The firm said the consensus price target on the stock by analysts was €3.23 before the deal was announced.While Glass Lewis said a rejection of the proposed sale “may give way to an indeterminate market environment, potentially including volatile trading patterns and regression in PTSB’s value”, it highlighted the strong run by banking stocks in general in recent times.A spokeswoman for PTSB said the bank “firmly disagrees” with Glass Lewis’s conclusion. “PTSB’s formal sale process involved an extensive global outreach to a wide range of potential buyers, including financial institutions, strategic investors and financial sponsors. This process was open to all interested parties,” she said. “PTSB is firmly of the view that the Bawag proposal represents the best value for all shareholders.”PTSB and its advisers are understood to be confident the EGM resolutions will win the 75 per cent shareholder approval required. But the potential for the High Court to demand a separate count of minority shareholders could yet scupper the deal going through in its current form as a scheme of arrangement. In that case, Bawag may switch to a tender offer, which would allow minority shareholders who do not want to sell to remain invested. This route throws up other potential issues. If Bawag were to come back in a year or two with an improved bid for the holdouts – subject to approval by the Irish Takeover Panel – it could be politically embarrassing for the Government. In the meantime, Bawag would face restrictions on the booking of bargain purchase gains from the deal, as well as possible adjustments to how PTSB’s capital is counted within the wider group. It could also make it more complicated for Bawag to use its own loss-absorbing funding, known as minimum requirement for own funds and eligible liabilities, to support PTSB, banking sources said. For both parties, the primary concern is that completion of the transaction could be delayed if the High Court rules that only a vote count is required – as they expect – only for some shareholders to subsequently take that decision to the Court of Appeal and potentially beyond. Investor Piotr Skoczylas, who mounted an initial legal challenge against the sale in May, having pursued several other cases since PTSB succumbed to State ownership in 2011, has proven to be persistent. Is there a point at which Bawag might decide to walk away? The bar would likely be very high.“If the deal were to fall through, whose shares would suffer the bigger decline?” Brennan says. “PTSB’s or Bawag’s?”