Barely over a month ago, Nairametrics received reports of an impending merger/acquisition deal between Access Bank and Diamond Bank Plc. As the rumours swirled, we made contact to sources within the bank who will not confirm or deny the authenticity of the rumours.
Within days, Diamond Bank issues a press release strongly denying it stating categorically that the Bank “is not in discussions with any financial institution at the moment on any form of merger or acquisition.” Access Bank also issued a denial claiming it was not in merger or acquisition talks with Diamond Bank.
On Monday, December 17th, 2018, both banks issued separate statements affirming the deal. Diamond Bank announced that they have “selected Access Bank Plc (“Access Bank”) as the preferred bidder with respect to a potential merger of the two banks (“the merger”) that will create Nigeria and Africa’s largest retail bank by customers.”
The resultant affirmation of the merger deal has once again placed corporate governance on the spotlight. Did Diamond Bank and Access Bank break any regulatory rules requiring announcements for deals?
What the rule says
According to Rule 17.10: Dealing with Rumour of the Issuers Rule Book of the Nigerian Stock Exchange:
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“Whenever an Issuer becomes aware of any rumour or report, true or false, in the press or the media, which is likely to have a bearing on an investor’s investment decisions and the value of the shares, and such information is of a different essence than the information previously disclosed to public by its representatives via material disclosures, prospectuses, circulars, announcements approved by The Exchange, financial reports and other public disclosure documents, the company shall make a public statement to clarify its position as promptly as possible.
Diamond Bank and Access Bank were expected to inform shareholders and the investing community about this transaction considering that rumours had started circling about a potential merger. Rumours like this can present arbitrage opportunities for investors; making some investors rich to the expense of others.
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What did the banks do?
The banks blatantly denied the transaction as indicated above suggesting that they may have flouted the rules of the stock exchange. Or Maybe not? Legal experts with knowledge of the transaction claim that within the same rulebook, there is a clause that allows both banks to deny the transaction even though it is true. Here it is;
Rule 17.7: Confidentiality Requirements
“(a) An Issuer may give information in strict confidence to its advisers and to persons with whom it is negotiating with a view to effecting a transaction or raising finance. In such cases, the Issuer must advise, in writing, the recipients of such information that it is confidential and constitutes inside information as defined in the Investments and Securities Act and that the recipients should not deal in the Issuer’s securities before the information has been made available to the public.
“(b) Notwithstanding any provisions of these Rules, no confidentiality agreement shall
prevent an Issuer from complying with its obligations under the Listings Rules.
“(c) Where an Issuer is obliged (by statute or otherwise) to impart information to a third
party or regulator and if such information thereby enters the public domain and is of a
price-sensitive nature, it should be simultaneously released to the market.
“Provided that an Issuer shall not be obliged to disclose any impending developments that could be jeopardised by premature disclosure.”
According to some Legal Experts with a bias to this transaction, this provision allows both Diamond Bank and Access to deny the transaction despite rumours that clearly indicate that the transaction was in the offing. Critics of the interpretation of the provision suggest that there is zero proof that disclosing the transaction after the rumour may clearly tilted towards fact cannot be misconstrued as a piece of information that could negatively affect the transaction.
They opine that a simple admission that both banks were in talks or that Diamond Bank was exploring its option including a possible deal with Access could not have jeopardised the transaction if it was indeed in the best interest of shareholders. Other critics suggest that the provision did not mandate the parties to the transaction to lie.
The Diamond Bank and Access Bank merger is a welcome development for the financial sector and the economy as a whole. It will always be better than seeing another bank collapse with depositors and shareholders losing all their money and investments respectively.
However, disclosures remain an issue in the capital market and regulators need to do better at curbing excesses. That this transaction was blatantly denied by both banks only for it to be true can be viewed as pure deception regardless of the provision of Rule 17.7.