By Ademola Alawiye

There are indications that the banking sector may witness mergers and acquisitions of over eight banks at the end of the banking sector reforms. However, analysts say openness is key to the success of the transactions, writes Ademola Alawiye.

The special audit by the Central Bank of Nigeria and the Nigeria Deposit Insurance Commission may be over but the struggle by banks to recapitalise is still on. In a bid to sanitise the financial sector, the apex bank had in 2009 introduced a number of measures including the sacking of executive managements of eight banks and the injection of N620bn bail-out funds into the banks. The eight banks are expected to seek fresh capital injection, which may be through a core investor or through mergers and acquisitions.

Although, most of the rescued banks have yet to comply with the directive due to different problems ranging from technical problems to litigation by shareholders, some of the banks have, however, signed memorandums of understanding with core investors that may eventually hold major stakes in them.

The apex bank has consistently made it clear that part of the end-solution for the rescued banks is acquisitions by local or foreign companies.

The Deputy Governor, Financial Systems Stability, CBN, Mr. Kingsley Moghalu, had said that the number of banks in the country might be reduced from 24 to 20 by the middle of the year, when the industry was expected to conclude recapitalisation deals.

Moghalu, made this disclosure in London, while responding to questions from prospective investors and stakeholders on the Nigerian $500m Eurobond.

He explained that the reduction in the number of banks was informed by the fact that about four would likely be taken over through mergers and acquisitions.

“By mid of 2011, the banks will be taken. Twenty or 21 banks will remain after the reforms. We are not legislating any number but the way it appears now, about three or four banks will be swallowed up in mergers and acquisitions,” he said.

He pointed out that at the beginning of the banking reforms, about 87 to 90 international and local financial institutions had expressed interest to invest in the rescued banks but that the number of interested buyers had since reduced to about 17.

Some of the foreign financial institutions that have shown interest in the rescued banks are Standard Chartered Group, FirstRand Limited, Vine Capital Partners Limited, African Capital Alliance Consortium and Habib Bank Pakistan. On the local scene, Access Bank Plc, First City Monument Bank Plc, Skye Bank Plc, Zenith Bank Plc and First Bank of Nigeria Plc have also shown interest.

Some of the deals have started yielding results as the banks and their intended core investors have started signing MoUs.

The Board of Directors of Afribank Nigeria Plc recently signed an MoU with Vine Capital Partners Limited and Phoenix Acquisition Company Limited in a bid to recapitalise the bank.

A statement by the bank said that the MoU provided a framework for the process by which the bank would be recapitalised.

The statement added that the process would be subject to the approval of the bank’s shareholders, the CBN, the Securities and Exchange Commission, the Nigerian Stock Exchange and the Federal High Court.

In the same vein, the Board of Directors of Union Bank of Nigeria Plc signed a Memorandum of Agreement with the African Capital Alliance Consortium to invest $750m in the bank.

This followed the earlier announcement that the bank had entered into negotiations with a core investor.

The bank said that the recapitalisation by the ACA Consortium would enhance its liquidity, corporate governance and capital adequacy and restore its strong competitive position.

Access Bank and Intercontinental Bank Plc also have signed MoUs for the purpose of combining the business of both institutions.

A statement by the two banks said that the business combination would offer unique opportunities for both institutions, adding that the synergy from combining the two banks would therefore create a formidable competitor with scale to rival the top banks in the industry.

Analysts in the banking sector, have, however, said that while mergers and acquisitions are on the rise in the banking sector, the activities currently suffer from several limitations.

According to them, mergers and acquisitions represent an ultimate change in a business and it is expected to add value to the business.

They pointed out that it was imperative for everyone involved in the process to have a clear understanding of how the process worked.

The Chief Executive Officer, Vintage Wealth Managers Limited, Mr. Idowu Ogedengbe, said that mergers and acquisitions would only enhance the strength of the financial sector if they were properly done.

He said, “The way and manner the process will be carried out is important. Every party in the process needs to be carried along. For instance, there should be a scheme of merger documents in any merger by two banks so that all stakeholders will know what is entitled to them. Since the companies are public quoted companies, the scheme of merger documents should be made open to all stake holders.

“It is only when the companies involved are not public quoted companies that you can do everything without openness. The mergers that we’ve seen so far failed to produce the scheme of merger document which makes it a wrong move. It is important for all existing shareholders to know how their shareholding will be affected. The shareholders will also want to know how their ownership will be captured in the new structure.”

Ogedengbe pointed out that the idea of banks merging was a good one but that all issues should be addressed in order not to create future problems that could lead to systemic failure.

He said, “The reforms are necessary, and the idea of mergers and acquisitions is a good one for banks that can’t meet up with the capital requirement. However, all issues should be taken care of; they should not put some issues under the carpet so as not to create problems that can lead to systemic failure in the future.

The Managing Director and Chief Executive Officer, Mutual Alliance Investment and Securities Limited, Dr. Olakunle Ologun, said that mergers and acquisitions were expected to yield good results if they were internally motivated.

He said, “As long as the mergers are internally generated mergers, they should yield good results and bring out the best for the two banks. It is only when they are forced mergers that it will bring hitches in the future because there will be conflict of interest. All the stakeholders should be carried along for the merger to work. The shareholders must also give consent to the merger for it to work. The case of Bank PHB Plc and Spring Bank was a failed merger because all issues were not addressed.”

The Deputy Manager, Civic Investment Limited, Mr. Thomas Adenuga, said there were cases where the synergies projected for merger and acquisition deal were not achieved, adding that problems from people and cultural issues were often cited as top factors in failed integrations.

He added, “In the light of recent developments, there should be new due diligence carried out on the banks because they have been doing business and so the valuations must have changed compared to the ones that were done after the stress test.”

Source: Punch