Recently the Asset Management Corporation of Nigeria (AMCON), the bad-debt warehouse, has been on a spree, reviving, redirecting and restructuring some Nigerian banks that have not lived up to expectation since the recapitalisation and reform processes that started in 2009. While some banks have had their entire leadership removed, others have had to be married off again and again.
“Do not panic,” the Governor of the Central Bank of Nigeria pleaded some days ago, because instability in the financial sector often sets off the wrong vibes if not properly understood by people who have one business or the other with the affected banks.
So what happens when a bank has a new husband? If you are one of the people who may be affected because of your direct involvement with the bank as a staff of the bank being married, or a shareholder, or even a customer, should you be worried about the change of status? Does it have any implication on your income or funds?
To be sure, a bank may get a new husband by mutual consent with another bank (merger) or forced by circumstances to marry (acquisition).
First, understand there is a difference between a merger and an acquisition. A merger refers to the combination of two or more separate enterprise, typically involving the issuance of new securities. Often when a merger takes place you could expect a new company with a new name like Mainstreet Bank, Enterprise Bank or Keystone Bank.
When that happens, shares could be reviewed either up or down depending on the health of the banks involved. In the case of a healthy bank being approached by another bank for a merger, the shareholders of the former can demand a premium or otherwise be compelled to make do with what they get.
Staff in both companies going through the merger might experience different fortunes with regards to which company is in the driver’s seat. The party contributing less in the marriage may have to let off a number of its staff. In the case where they are equal in strength, the staff may remain or both agree to shed some staff. In any case, the customer wins.
An acquisition, on the other hand, occurs when one or a group of entities buys the stock of another firm. In which case, no new company is formed like Access Bank purchase of Intercontinental Bank. In an acquisition, the acquiring bank owns the majority stake in the acquired bank. AMCON announced it would be releasing the name of the buyers of Keystone who it expects to take up 100 percent stake in the bank – an outright sale. An acquisition can happen when a buyer takes at least 51 percent of a firm. In that case, he is obligated to protect the interest of the 49 percent who are now in the minority.
In an outright sale like the Keystone example, the first thing to expect is that the acquiring entity may likely disengage a number of the workforce. The reason being the new firm comes with new standards that it could decide are not being met by staff in the acquired bank. Another reason is that it simply wants to streamline its operational cost.
Cultural issues also come to play when a merger or acquisition is effected. The acquiring firm wants to establish a new way of doing business, or on rare occasions, wants to adapt to the acquired company’s standards. Since the acquisition process could last for a long while, staff can use the period to acquire new skills or increase their output to make themselves more relevant, or activate their exit strategies.
Shareholders in both cases may win outrightly or lose some funds as a result of the marriage. A marriage often signifies an expansionist ambition, in which case it means the company wants to make more profits for the shareholders. If you are a shareholder in the acquiring company, you have a better chance at a win-win should everything go well with the acquisition. On the other hand, if your funds are in the company that needed to be rescued, it is a likely lose-win. In the short term, your income could suffer through reduction in the number of shares you hold or in the valuation. However, that could turn around when the shares appreciate and the company begins to make profit.
Depositors usually do not lose much through the process because their funds are safeguarded by the Nigeria Deposit Insurance Corporation. There may be interruptions in the operations of the bank being acquired. This is largely nothing to worry about seeing that even banks that are stable also experience interruptions in operations. All in all, your money is safe.
FRANK ELEANYA
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