Access Bank shares down over 25% since merger announcement 

Tier one lender, Access Bank Plc’s shares are down 28.8% since the bank confirmed its intentions to merge with Diamond Bank. 

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On the 17th of December, 2018 when the bank issued a statement confirming the merger plans, the stock closed at N8.15, up 9.4%. It closed at N5.80 on Friday’s trading, down 5.69%.

Reasons for decline 

While the general market has been in the negative (down 17.81% in 2018, and 2.6% so far in 2019) the decline in the stock’s share price may be largely due to the impending dilution of existing shareholders.

As part of the terms and conditions for the proposed merger, Access Bank will be issuing 6.62 billion new shares to Diamond bank shareholders. Access bank currently has 28.8 billion shares issued.

The outstanding shares would go up further following the conclusion of a planned rights issue. The bank intends to raise N75 billion through a rights issue. At the current price, this would mean that roughly 12 billion new shares would be issued.

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Access Bank could also decide to lower its dividend payment for the 2018 financial year, in a bid to conserve capital. A total of N0.65 was paid as a dividend in 2017, comprising N0.25 as interim, and a final dividend of N0.40. The bank paid an interim dividend of N0.25 on September 21, 2018.

An increased number of shares in issue, meaning that the bank’s earnings per share and dividend payment could drop.

Implications of a further drop

If the stock continues to decline, the bank may be forced to review the terms it has offered Diamond Bank shareholders. It would either have to issue a larger number of additional shares, or a bigger cash payment.

As at the 13th of December 2018, when the deal appears to have been struck, Access Bank was trading at N7.45. The stock is thus down 28.4% from the deal date.

Nairametrics last week placed a SELL recommendation on the stock.

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