Nairametrics
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
  • Markets
    • Cryptos
    • Commodities
    • Equities
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Industries
    • Company News
    • Consumer Goods
    • Content Partners
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Tech News
  • Economy
    • Get Data
    • Macro-Economic News
    • Research Analysis
  • Business News
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
No Result
View All Result
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
  • Markets
    • Cryptos
    • Commodities
    • Equities
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Industries
    • Company News
    • Consumer Goods
    • Content Partners
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Tech News
  • Economy
    • Get Data
    • Macro-Economic News
    • Research Analysis
  • Business News
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
No Result
View All Result
Nairametrics
No Result
View All Result
Home Opinions Blurb

Can Access Bank actually buy Diamond Bank? How it could happen

Nairametrics by Nairametrics
November 13, 2018
in Blurb, Spotlight
Access Bank and Union Bank, Securities and Exchange Commission Nigeria, SEC might nullify Access Bank and Diamond Bank merger, Access Bank and Diamond Bank, Access Bank to acquire Kenyan bank seven months after merger with Diamond Bank 

Access Bank consolidates with Diamond Bank

Share on FacebookShare on TwitterShare on Linkedin

The banking sector was rocked on Monday after the Nation newspaper purportedly reported that Access Bank was considering acquiring Diamond Bank Plc. Diamond Bank and Access Bank have both issued press releases denying that no deal for a potential acquisition was being discussed.

Access Bank had acquired Intercontinental Bank, considered bigger at the time, in a deal that catapulted the former into tier one status. Diamond Bank, on the other hand, has been embroiled in several reports questioning its capital adequacy and liquidity, increasing speculations that it could be seeking a potential capital injection. With Access Bank in the picture, the pressure has all but increased for the Tier 2 bank to shore up its capital either organically or attracting investments from an external source.

Is an Access Bank Merger plausible?

Whilst both Access Bank and Diamond Bank have denied these reports, analysts at Nairametrics have pondered on the potential possibility of a takeover of Diamond Bank by Access Bank. Why would Access Bank want to acquire Diamond Bank? How will the acquisition be consummated? What will be the purchase consideration and how will Access Bank pay for it? Let’s consider a few scenarios;

RelatedPosts

Dissecting Atiku’s economic plan

By the numbers: Comparing NNPC with Saudi Aramco

Why would Access Bank acquire Diamond Bank?

When a company desired to acquire a target it is either to help kill competition or to expand footprint and market share. Acquiring Diamond Bank will not necessarily kill competition for Access Bank as they still need to contend with the rest of the FUGAZ (an acronym for the big five banks in Nigeria). However, the acquisition allows Access Bank to increase its market share.

Access Bank currently has a total asset base (as at September 2018) of about N4.5 trillion and Diamond Bank, N1.5 trillion. Combined will deliver an asset base of about N6 trillion and larger than Nigeria’s largest bank by Asset Base, Zenith Bank at about N5.6 trillion. For a bank looking to rise to the top inorganically? A potential acquisition of Diamond Bank seems logical.

How will the acquisition be consummated?

To acquire Diamond Bank, Access Bank can explore a number of options which are cash, cash plus equity or strictly equity. Both banks will have to employ the services of financial advisors and deal arrangers.

How much will Diamond bank be worth?

Based on today’s market price Diamond Bank is valued at about N26.8 billion a whopping 88% discount to its book value (equity) of about N221.6 billion. Surely, if Access Bank were to attempt an acquisition of Diamond Bank it will have to pay significantly higher than its equity. At a premium of 1.5x to equity, the bank could be worth about N320 billion only. If it were to sell for the same price to book ratio of GTB, the most expensive stock, then it could be worth about N442 billion.

How will Access Bank pay for it?

As mentioned earlier, Access Bank could pay a full cash or a combination of cash plus equity or just equity. Does Access Bank have N442 billion in cash? Access Bank’s total shareholder’s fund is currently N464 billion, thus on paper, it may not have the capital to fund such a transaction. However, it has a total of N1.3 trillion in cash and balances with banks.

Whilst most of this cash include depositors money, it could fund an acquisition from this cash allowing it some time to raise equity via a rights issue to plug the hole. Prior banking acquisitions in Nigeria took this route.

It could well fund the transaction with a combination of cash plus equity. Assuming a 50/50 split, it could offer Diamond Bank shareholders about 28.3 billion new shares in Diamond Bank and cash of about N220 billion. This seems like a bad idea considering that Access Bank shares outstanding are a little above 28.9 billion.

Also, Access Bank is somewhat undervalued and trading at less than 47% of its book value. To move towards this route, Access Bank shares will probably be double if not triple its current share price. Watch out for this, if indeed an acquisition is in the offing.

Funding this transaction with pure equity is a plausible but unlikely route in our opinion. It will be too expensive for Access Bank shareholders.

Finally, a potential acquisition of Diamond Bank by Access Bank is plausible as the latter has the balance sheet to consummate this transaction. How this will pan out is a lot more complicated than described above as these deals involve a lot more valuation haggling, trade-offs, and compromises. Nevertheless, it is one that could jolt the financial services sector and perhaps launch Access Bank as the largest bank by balance sheet in Nigeria. On the downside, Access Bank may have to rake in some downside losses if reports by some analysts that it still has more bad loans to write off are true.

Related

Tags: Access BankDiamond BankOn the Money

Comments 1

  1. Michael okpe says:
    November 17, 2018 at 12:35 pm

    Why Diamond Bank hall always filled with numerous customers, while stanbic ibtc ,GTB filled with few customers are making huge profits and Diamond bank profit declining.? EFCC to investigate and tell shareholders the really problems with the bank,please.

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Mega Millions
Hot forex
Cornerstone
Polaris Bank
Access Bank
Bankers Committee
First bank


FCMB
Ikeja Electrics




    Business News | Stock Market | Money Market | Cryptos | Financial Literacy | SME |

    Recent News

    • Nigeria’s BlackHouse Media ranked number 3 agency in Asia pacific, middle east, and Africa
    • Nigerian Exchange suspends Royal Exchange, C&I Leasing, 7 others for default in audited financial statements
    • NGX closes flat as market capitalization grows slightly by over N6 billion

    Follow us on social media:

    Recent News

    Nigeria’s BlackHouse Media ranked number 3 agency in Asia pacific, middle east, and Africa

    Nigeria’s BlackHouse Media ranked number 3 agency in Asia pacific, middle east, and Africa

    July 1, 2022
    FBN Quest, Cordros, Apel lead best performing stockbroking firms in October 2021

    Nigerian Exchange suspends Royal Exchange, C&I Leasing, 7 others for default in audited financial statements

    July 1, 2022
    • ABOUT US
    • CONTACT US
    • PRODUCTS
    • ANDROID APP
    • iOS APP
    • DISCLAIMER
    • CAREERS
    • PRIVACY POLICY

    © 2022 Nairametrics

    No Result
    View All Result
    • Home
    • Exclusives
      • Financial Analysis
      • Corporate Stories
      • Interviews
      • Investigations
      • Metrics
    • Markets
      • Cryptos
      • Commodities
      • Equities
        • Dividends
        • Stock Market
      • Fixed Income
      • Market Views
      • Securities
    • Industries
      • Company News
      • Consumer Goods
      • Content Partners
      • Corporate deals
      • Corporate Press Releases
      • Energy
      • Entertainment
      • Financial Services
      • Hospitality & Travel
      • Manufacturing
      • Real Estate and Construction
      • Tech News
    • Economy
      • Get Data
      • Macro-Economic News
      • Research Analysis
    • Business News
    • Financial Literacy
      • Career tips
      • Personal Finance
    • Lifestyle
      • Billionaire Watch
      • Profiles
    • Opinions
      • Blurb
      • Op-Eds

    © 2022 Nairametrics

    Social Media Auto Publish Powered By : XYZScripts.com