• Login
  • Register
Nairametrics
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
    • Economy
    • Nairalytics
  • Markets
    • Currencies
    • Cryptos
    • Commodities
    • Equities
      • Company Results
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Sectors
    • Agriculture
    • Aviation
    • Company News
    • Consumer Goods
    • Corporate Updates
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Health
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Renewables & Sustainability
    • Tech News
  • Business News
    • Budget
    • Public Debt
    • Funds Management
    • Tax
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
    • Research Analysis
  • Recapitalization
    • Access Holdings Offer
    • Fidelity Bank Offer
    • GTCO Offer
    • Zenith Bank Offer
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
    • Economy
    • Nairalytics
  • Markets
    • Currencies
    • Cryptos
    • Commodities
    • Equities
      • Company Results
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Sectors
    • Agriculture
    • Aviation
    • Company News
    • Consumer Goods
    • Corporate Updates
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Health
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Renewables & Sustainability
    • Tech News
  • Business News
    • Budget
    • Public Debt
    • Funds Management
    • Tax
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
    • Research Analysis
  • Recapitalization
    • Access Holdings Offer
    • Fidelity Bank Offer
    • GTCO Offer
    • Zenith Bank Offer
Nairametrics
No Result
View All Result
Home Markets

Access Bank Plc and Diamond Bank Plc merger, a lofty deal or a damp squib?

Op-Ed Contributor by Op-Ed Contributor
December 18, 2018
in Markets, Spotlight
Diamondxtra, Access Diamond merger, Diamond Bank, Access Bank, Consolidation, Merger, Shareholders, International Women's Day
Share on FacebookShare on TwitterShare on Linkedin

In our recently published equity commentary on Diamond Bank (See report: Overblown fright or Justified concerns), we had stated three options the bank’s management will adopt to keep the bank operational and meet its obligation to lenders. While we had considered the possible acquisition by a bigger bank, the management of both banks in separate press releases refuted the claim. Consequently, as with one of our options, Diamond Bank got approval from the CBN to operate as a national bank following the sale of its UK business, a development that was perceived to have saved the bank from capitalisation needs and continue operations on a better footing.

…and then a Scheme of Merger

To our surprise, news broke over the weekend of a possible merger between both banks, with the management of Access Bank Plc and Diamond Bank Plc yesterday separately issued releases on the Nigerian Stock Exchange (NSE) stating the planned acquisition of Diamond by Access with a consideration price of N3.13/share. This is on the consideration of N1.00 in cash for one share of Diamond bank held and 2 new shares of Access for every 7 shares of Diamond. Accordingly, we estimate total cash consideration of N23 billion and new allotted shares of 6.6 billion units in Access Bank. We note that the consideration price is 213% above the closing market price of N1.0 per share of Diamond yesterday.

Estimating the transaction multiples

As at 9M 2018, Diamond bank’s book value stood at N217.1 billion with a book value per share (BVPS) of N9.37, we estimate a transaction price to book multiple (P/B) of 0.3x compared with the market valuation of 0.1x P/B. Given our thought that the transaction is strictly equity based, we assume a situation wherein the unprovisioned part of the non-performing loan is adjusted for through equity to leave the books with performing assets. As such, based on current NPL of N99 billion and total credit charge loss of N54 billion, we estimate an equity charge of N45 billion by Diamond bank over Q4’18 to leave the book value at N172.1 billion and BVPS of N7.4 with implied transaction price to book multiple of 0.4x.

RelatedStories

Report: Nigerian banks paying their staff less salaries compared to African peers, blames AMCON 

Report: Nigerian banks paying their staff less salaries compared to African peers, blames AMCON 

June 13, 2025
Nigerian banks, fintechs set to launch cNGN stablecoin on February 27 

Top 10 Nigerian banks with the highest app downloads as of May 2025  

June 13, 2025

How they Stack up Post Consolidation

The notice by Access indicated that the bank will issue additional shares of 6.6 billion shares to accommodate the shareholders of Diamond bank. Assessing the impact on current outstanding shares of Access bank of 28.9 billion, we estimate increase in total shares post consolidation to 35.5 billion. Accordingly, we estimate that the potential dilution from the merger of 19%. 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.

Expected Moderation in Cost of Funds. During our engagement with management of Access Bank in November, they guided to the bank’s plan to gradually close out on expensive borrowings. Specifically, the CFO stated that the bank could refinance its expensive Eurobonds if presented with the opportunity and any other available opportunity that could result in a significant moderation in its funding costs.

Notably, as at 9M 18, Access cost of funds stood at 5.6% compared to Tier 1 average of 4.0%, following contraction in cheaper deposit (current and savings account) mix by 195bps to 45% which resulted in 18.5% YoY jumps in interest on customers deposits, 1.0x YoY growth in interbank placements, and 73.8% YoY increase in borrowing cost. However, Diamond cost of funds remains the lowest among peers at 4% (coverage Tier 2 average of 5.4%) despite a 260bps YoY contraction in CASA composition to 78.3% over 9M 18. Accordingly, we see some benefit to Access in terms of moderation in funding cost from the acquisition of Diamond and estimate that Access’s cost of funds could moderate to ~5.1% with a CASA mix of ~55.3% post-consolidation.

However, given the reaction to the bank in recent months, we are cautious on the level of cheaper deposits composition being inherited by Access bank. For context, over the last five quarters, Diamond bank has lost CASA deposits of N247.6 billion, reflecting a 22.8% decline YoY to N836.7 billion in Q3 18 from N1.1 trillion in Q3 17. Also, given the lower credit rating of Diamond bank, in terms of corporate deposits, we do not rule out the possibility of erosion in Access bank’s credit rating.

What’s the immediate Impact?

In summary, while this acquisition appears positive for shareholders of Diamond Bank, we are of the view that 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. That said, we await meeting with Management of Access Bank tomorrow (Click here for conference detail) for further details and discussion on this acquisition and would communicate our views in due course.

Any benefit for the core investors in Diamond?

Following the exit of Actis in August 2014 and the need for recapitalization of the bank in November 2014 via a rights issue, Carlyle Group, became the largest single shareholder in Diamond with transaction valued at $147 million (N7.38 per share). Accordingly, we estimate that on current price of N1.07, the Group is taking a bad hit on the investment to the tune of N20 billion. Accordingly, we believe that the consideration price of N3.13 could reduce Carlyle loss in the venture to ~ N11.4 billion in the short term. However, post consolidation and integration of the shareholders into the enlarged Access bank, we believe the change in the fortune of Carlyle in the venture will be determined by the gains from the integration.

ARM ratings and recommendations

ARM now employs a two-tier rating system which is based on systemic importance of the security under review and the deviation of our target price for the stock from current market price. We characterize systemic importance as a function of a stock’s ranking among the group of top 20 stocks by NSE market capitalization over a trailing 6-month period (minimum) to the review date.

We adopt a 5-point rating system for this category of stocks and a 3- point rating system for stocks outside this group. The choice of top 20 stocks arises from the consideration that this group of stocks constitutes >75% of overall market capitalization and stocks outside this group are generally less liquid and individually account for <<1% of market capitalization. For stocks in both categories, the basis for ratings subject to target price deviation is outlined below:


Follow us for Breaking News and Market Intelligence.
Tags: Access BankARMDiamond BankOn the Money
Op-Ed Contributor

Op-Ed Contributor

Nairametrics frequently publishes articles from experts such as financial analysts, economists, researchers and investors. We also feature articles from guest writers and bloggers who wish to push their views and opinions through our platform. To get your articles on Nairametrics, kindly send an email to info@nairametrics.com and we will publish it within 24 hours of approval by our editorial team.

Related Posts

Report: Nigerian banks paying their staff less salaries compared to African peers, blames AMCON 
Financial Services

Report: Nigerian banks paying their staff less salaries compared to African peers, blames AMCON 

June 13, 2025
Nigerian banks, fintechs set to launch cNGN stablecoin on February 27 
Exclusives

Top 10 Nigerian banks with the highest app downloads as of May 2025  

June 13, 2025
UBA
Financial Services

UBA, Access Bank among Nigeria’s strongest brands in 2025 –  Report 

May 22, 2025
Nigeria’s largest multinationals spreading across Africa – 2025
Companies

Nigeria’s largest multinationals spreading across Africa – 2025

May 7, 2025
Nigerian Banks
Exclusives

Which Nigerian banks pay their staff the most and the least in 2024 

April 22, 2025
AfDB, AI
Economy

AfDB plans $230 million trade finance package for Access Bank Nigeria 

March 5, 2025
Next Post
Financial statements

Daily update on Treasury Bills, Bonds, Forex, oil price and more

Comments 3

  1. Brian says:
    December 18, 2018 at 6:11 pm

    Does this mean, for instance, if I own 10 Diamond bank shares;

    1) I’d receive ₦10 plus 2 unit of shares of Access Bank at the prevailing Access Bank share price? Based on the consideration of ₦1.00 in cash for one share of Diamond bank held and 2 new shares of Access for every 7 shares of Diamond.

    And

    2) What would happen to my remaining 3 units of Diamond bank shares? Would they be acquired for ₦3.13 per share?

    Thank you!

    Reply
    • Onome Ohwovoriole says:
      December 19, 2018 at 10:15 am

      If you own 10 Diamond Bank shares, you would get N10 for them. In addition, you would get roughly two Access Bank shares and some fraction. The bank could decide to either round up the shares to 3, or round it down to 2. Diamond Bank shares would cease to exist if the transaction is approved.

      Reply
  2. Lawson Omiunu says:
    December 19, 2018 at 2:46 pm

    Nicely written piece.
    I don’t really get this though, “Also, given the lower credit rating of Diamond bank, in terms of corporate deposits, we do not rule out the possibility of erosion in Access bank’s credit rating.” Are you saying the credit rating of Diamond bank could lead to an erosion of Access bank’s credit rating? Not entirely correct. I also don’t get the bit on corporate deposits; as far as I know, they are usually a function of credit rating for the multinationals, and all the others are largely rate sensitive. So, I struggle with the plot here.

    Reply

Leave a Reply Cancel reply

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

Emple
nlng
first bank








DUNS

Recent News

  • FG treats 30 million Nigerians with ivermectin in major push against tropical diseases 
  • World Bank disburses N3.8 billion to boost climate adaptation in Yobe communities 
  • NCC vs MTN: AGF to decide on criminal charges facing CEO Karl Toriola 

Follow us on social media:

Recent News

FG treats 30 million Nigerians with ivermectin in major push against tropical diseases 

FG treats 30 million Nigerians with ivermectin in major push against tropical diseases 

July 2, 2025
World Bank disburses N3.8 billion to boost climate adaptation in Yobe communities 

World Bank disburses N3.8 billion to boost climate adaptation in Yobe communities 

July 2, 2025
  • iOS App
  • Android App
  • Contact Us
  • Home
  • Markets
  • Sectors
  • Economy
  • Business News
  • Financial Literacy
  • Disclaimer
  • Ads Disclaimer
  • Copyright Infringement

© 2025 Nairametrics

Welcome Back!

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Fill the forms below to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
Social Media Auto Publish Powered By : XYZScripts.com
No Result
View All Result
  • Home
  • Exclusives
    • Financial Analysis
    • Corporate Stories
    • Interviews
    • Investigations
    • Metrics
    • Economy
    • Nairalytics
  • Markets
    • Currencies
    • Cryptos
    • Commodities
    • Equities
      • Company Results
      • Dividends
      • Stock Market
    • Fixed Income
    • Market Views
    • Securities
  • Sectors
    • Agriculture
    • Aviation
    • Company News
    • Consumer Goods
    • Corporate Updates
    • Corporate deals
    • Corporate Press Releases
    • Energy
    • Entertainment
    • Financial Services
    • Health
    • Hospitality & Travel
    • Manufacturing
    • Real Estate and Construction
    • Renewables & Sustainability
    • Tech News
  • Business News
    • Budget
    • Public Debt
    • Funds Management
    • Tax
  • Financial Literacy
    • Career tips
    • Personal Finance
  • Lifestyle
    • Billionaire Watch
    • Profiles
  • Opinions
    • Blurb
    • Op-Eds
    • Research Analysis
  • Recapitalization
    • Access Holdings Offer
    • Fidelity Bank Offer
    • GTCO Offer
    • Zenith Bank Offer
  • Login
  • Sign Up

© 2025 Nairametrics