Nairametrics confirms that a merger deal between Access Bank Plc and Diamond Bank will be announced on or before Close of Business Monday, December 17th, 2018.
From denial to reality
Just a few weeks back rumors emerged of a possible merger between the two banks. The shock reverberated through the financial services sector until both banks issued independent statements denying any merger.
However, several sources with knowledge of the deal inform Nairametrics that negotiations had ensued despite multiple denials. Shareholders from the very start, have thus been misled about this deal.
Why this deal?
The impetus for this deal is not immediately clear, however, several analysts spoken to by Nairametrics suggest it could be either of two reasons.
Firstly, it appears this may have been triggered by unpaid loans between the Dozie family and Access Bank which is likely not performing. It appears Access Bank may have provided the funding used by the Dozie’s to acquire a significant stake in the bank in prior years. Any deal short of an acquisition may have thus negatively impacted on the loans thus the need for the takeover.
Another reason posited by analysts suggest this deal was an opportunity for Access Bank to be the largest bank in Nigeria by Asset Base. In terms of profitability and returns on equity, Access Bank is behind GT Bank and Zenith Bank. The merger will thus produce a larger bank on paper but not an efficient bank. Diamond Bank still carries a significant portion of non-performing loans which could further trigger further write-downs for the post-merger bank.
Despite the reasons postulated it now appears that an acquisition was the plausible option for both banks, especially Diamond Bank. Had the bank deteriorated to the extent that the CBN steps in then shareholders of the bank, particularly the Dozie family, would have lost out completely. This deal, however, keeps them in the fray and perhaps in the near term keeps the family name intact.
For Access Bank, this was a clear opportunity to leapfrog the rest of the FUGAZ Tier 1 banks to become the largest bank in Africa. Whilst it at least will not need to write down its loans to the Dozie family, it will convert the loan as part of the equity required to pay for the merger. The value of the loan, if any, cannot be confirmed by Nairametrics.
Despite the impending announcement, regulators, CBN and SEC will still have to approve this transaction. This process could take weeks if not months assuming shareholders of both banks comply with regulatory requirements. Critics of this merger already point to potential procedural breaches.
More headwinds lie ahead for both banks as they still require shareholder approval to consummate the transaction. For this deal to be consummated, shareholders of both banks will have to approve it with the sponsors of the merger abstaining.
Sources suggest there might be push back on the Diamond Bank side of the deal as its majority shareholder Carlyle Investment may have felt shortchanged. Carlyle had offered to bail out the bank but this request was rejected by the Dozie family after they requested for the resignation of Uzoma Dozie the CEO of Diamond Bank.
While a potential Access Bank acquisition/merger with Diamond Bank could still lead to the resignation of Uzoma Dozie, we understand the Dozie’s will keep a significant portion of their shareholding of the bank giving them a seat on the board of the bank.
More details to follow