Investors will take the opportunity of a conference call with the management of Access Bank Plc on Wednesday to ask tough questions concerning the Bank’s merger with Diamond Bank Plc.
Shareholders of the tier-one lender, who are now bracing for a potential share dilution, want to know the full extent to which the merger will impact key performance metrics from profitability to Return on Equity (ROE).
“Shareholders know the merger brings short-term pain with it, but want to lay a finger on what the future holds,” said Wale Okunrinboye, head of research at Pension fund manager, Sigma Ltd.
“They want some assurance that the bank will not burn out from the deal and are curious if there are any sweeteners to have emerged from the transaction that puts Access bank at an advantage,” Okunrinboye added.
Access announced a merger with struggling tier-two lender Diamond bank Monday in a cash plus shares deal worth some N72 billion, about $200 million. On Tuesday, bankers working on the deal said Access will launch a subordinated rights issue of about $200 million to keep its capital well above regulatory requirements.
Access Bank’s share price declined 4.29 percent Tuesday as investors who had bided the stock 9 percent higher Monday, feared further share dilution from the planned rights issues.
Plans by Access bank to issue 6.6 billion additional shares to accommodate the shareholders of Diamond bank, means shareholders of the former face a potential dilution of 19 percent, according to estimates by ARM Research and Renaissance Capital.
The additional shares will take the current outstanding shares of Access bank of 28.9 billion to 35.5 billion. Furthermore, post-merger, Carlyle Group, Kunoch Holdings and Diamond Partners will own 3.3%, 1.7% and 1.1% of the enlarge Access bank respectively.
“While this acquisition appears positive for shareholders of Diamond Bank, the transaction will be undesirable for Access Bank in the near term, giving bottlenecks in terms of collapsing of structures as well as dilution impact on profitability metrics,” analysts at ARM said in a note to clients Tuesday.
“That said, we await meeting with Management of Access Bank Wednesday for further details and discussion on this acquisition and would communicate our views in due course,” ARM analysts added.
There are also questions to be answered about the true health of Diamond bank and whether it was worth merging with Access.
The transaction implies that the fair value of Diamond bank’s equity is N3.13, when it has just published a third quarter 2018 book value per share of N9.57.
A likely question to emerge from this would be why it was not announced to both shareholders and the market that Diamond Bank was restating its stated equity.
How it is possible for the N9.57 figure to be real if Diamond actually thinks N3.13 is fair value is unclear.
Another question on the minds of shareholders is how Access was able to strike a deal with Diamond bank at a time when the latter is without an independent chairman and two independent directors.
Investors are also scratching their heads over how such an important transaction by the board could be made without a Chairman and two independent members even when the Central Bank of Nigeria (CBN) requires the Board of Directors of a bank to have at least two independent members and currently there are none at Diamond following the resignation Seyi Bickersteth, Rotimi Oyekanmi, Juliet Anammah and Aisha Oyebode last October.
“Whilst the Board of Directors in October had a strong bias towards non-executives, the current board has an equal weighting of executive and non-executive members and this concerns us,” an informed market source told Business Day.
In addition to concerns over the structure of the Diamond bank board that approved the transaction, there are also questions unanswered about the sale process.
Diamond Bank said that “following a strategic review leading to a competitive process, the Board has selected Access Bank Plc as the preferred bidder”.
That implies there was apparently a competitive process where bids were being sought for the bank’s equity but minority shareholders were not told about the process.
Diamond bank had refuted claims by former board Chairman, Seyi Bickersteth, that it received any offers when rumours of an acquisition by a local lender made the rounds.
Even if the Securities Exchange Commission (SEC) or Nigerian Stock Exchange (NSE) may not require this, the question is why wasn’t more information made available about the various options?
If shareholders have to accept the Access shares, surely they need to be told about the alternatives available to the bank.
“Minority shareholders need to be told a lot more so that they may make an informed decision,” an informed market source told Business Day.