3. DEFINITION A business combination may take the form of a merger, a purchase of shares, an
acquisition of assets or an arrangement, compromise or reconstruction amongst or
between companies. Merger can be defined as a transaction where one entity is
combined with another so that one initial entity loses its distinct identity while
Acquisition is classified as a transaction where one firm purchases a controlling stake
(and/or the whole) of another firm.
Business combinations are generally subject to the approval of the Securities and
Exchange Commission (SEC) and the principal law that regulates business
combinations in Nigeria is the Investments and Securities Act 2007 (ISA 2007),
along with the Rules and Regulations of the Securities and Exchange
Commission(SEC Rules).
Additional laws may apply, depending on the industry in which the merging
companies operate. For example, the banking, broadcasting, electricity, insurance,
oil and gas and telecommunications industries all have industry-specific legislation
and applicable regulatory authorities.
Nigerian SEC rules provide for mergers defined by three thresholds, which are
determined by valuing either the combined assets or turnover, or the combined
assets and turnover of the merging companies. They are as follows: for small merger
threshold, below 250 million naira (or N); for intermediate merger threshold,
between N250 million And N5 billion; and for upper merger threshold, above N5
billion.
4. HISTORICAL BACKGROUND
PRE-
RECAPITALISATION
There were 89 bank
prior to 2005.
Only 10 of them
accounted for 51.9%
of total asset, 55.4%
of total deposit
liabilities and 42.8%
of total credit which
made the industry
highly oligopolistic
with high market
concentration.
An examination
conducted by cbn
revealed that only 10
banks were sound, 51
were satisfactory, 15
were marginal and 10
were rated unsound
in 2004.
POST-RECAPITALISATION
Increase in min. capital base from N2b to N25b in
2005
Decrease in the number of banks to 25 from 89 banks
Further decreased to 23 with the merger of first
atlantic bank plc and inland bank to form Finbank
plc, stanbic bank ltd and IBTC chartered bank plc to
form stanbic-IBTC bank plc. Citibank nig. Ltd joined
to make it 24 banks.
The nation to experience another round of financial
crisis in 2008/2009, as revealed by the CBN/NDIC
joint Special Examination carried out in 2009, the
Examination results revealed among others, that 10 of
the 24 deposit money banks were in grave financial
condition, Out of the 10 banks, owners of Wema Bank
and Unity Bank Plc were able to adequately re-
capitalize their banks
Non-performing loans(NPLs) totaled N1,696B in ten
banks, capital adequacy ratio ranged between -1.01%
and 7.41% of which the min. required was 10%.
5. CONTINUATION OF HISTORY
In order to address that challenge, the CBN gave the banks a
deadline of 30th September, 2011 to recapitalize or have their
licenses revoked. In response, five of the banks, namely:
Intercontinental Bank Plc, Oceanic Bank Plc, Union Bank of
Nigeria Plc, Finbank Plc and Equitorial Trust Bank Plc entered
into negotiations with prospective core investors. The banks
and their preferred investors were: Intercontinental Bank Plc
(Access Bank Plc); Oceanic Bank Plc (Ecobank Plc ); Union
Bank Plc (Shareholders and African Capital Alliance Group);
Finbank Plc (First City Monument Bank Plc); and Equitorial
Trust Bank Plc (Sterling Bank).
In August 2011, cbn revoked the licence of 3 banks the CBN
revoked the licenses of three of the rescued banks for failing to
recapitalise thereby nationalizing Bank PHB, Afribank and
Spring Bank. The assets of these banks were transferred to three
newly created, nationalised banks: Keystone Bank, Enterprise
Bank and Mainstreet Bank. AMCON which took over the banks
also injected N680 billion to recapitalise the banks
6. perspective
INTERCONTINENTAL
BANK
Protection of depositors funds,
protection of creditors as well as other
stakeholders .
creation some reasonable value for the
shareholders, who in the ordinary
course of business would have lost their
entire investments if the bank had
liquidated or nationalised
shareholders of the bank will get one
access bank share of 50 kobo, credited
as fully paid up for every seven
intercontinental shares forgone.
The combined effect of the restoration
of the bank’s net asset value to zero by
AMCON and #50B capital injection by
access bank is that intercontinental
bank is now a well capitalized bank with
capital adequacy ratio of 24%
ACCESS BANK
Approval by both banks shareholder
brought about the completion of the
recapitalization of intercontinental
bank
the perspective of access bank as
regards the merger isn't that of
rationalization but of business
sustainability
The transaction cost of the acquisition
was low due to the CBN’s intervention
– significant de-risking of
intercontinental bank’s balance sheet
and significant opportunities to build
up regulatory capital internally.
Number of branches of the combined
entity increased to 500
The merger will create the fourth
largest bank in the country
7. STRATEGIC REASONS
Intercontinental bank , Strengths- retail banking with 300
branches across Nigeria, cutting edge technology, high quality
and committed workforce. Weaknesses- little focus on
institutional banking.
Access bank, strengths- institutional and corporate banking,
experienced in mergers and acquisitions, strong asset quality.
Weakness- weak retail distribution network
The merger of the 2 banks offered a high degree of synergy and
complementarily unique in the Nigerian banking environment
It reduces systematic risk in the banking industry
Potential for significant growth in the retail banking segment
with the combined entity having a customer base of over seven
million customers currently
8. Analysis of key performance indicators of access bank
2009 2013 +/-
capital adequacy ratio 33% 20% -0.39
market price p/share N7.6 N9.6 0.26
earnings p/share N(12)k N159k 171
net asset value p/share 0 1.19 119
total asset N689B N1835B 1.66
customer deposit N442B N1331B 2.01
customer loan net N385B N810B 1.11
market capitalisation N123592B N219676B 0.78
gross earnings N88B N208B 1.36
profit before tax N(4)M N45M 49
profit after tax N(4)M N37M 41
non-performing loans 19% 2.40% -0.78
9. EFFECT
Agusto&co upgraded access bank’s credit rating from A to A+,
this reflects the full synergy with intercontinental bank plc. This
rating also recognize its strong liquidity position, the bank’s
branch network has led to improved visibility among Nigerian
which has led to good market share.
Non-performing loans(NPLs) to gross loan ratio stood at 2.4% in
comparism to industry average of 3.6%.
Access bank now have access to long-term funding from local
and foreign multilateral agencies and institution thereby
increasing it capacity to execute larger transactions as shown by
the recent $400m Eurobond successfully raised
Access bank became a top tier bank and the fourth largest bank
in the country by market share by having at least 500 branches
nationwide
10. CONCLUSION
The banking sector Plays a germane role in the economic development of a
nation. The banking sector in an economy serves as a catalyst for economic
growth and development through its financial intermediation function,
provision of efficient payment systems etc.
The banking sector in the third world economies has been grossly under-
managed when compared with their counterparts in the developed countries of
the world, it was imperative for nigerian banks to sanitize and restructure their
operational processes so as to survive the depressed economy
The cbn required the banks recapitalise from N2b to N25b , the financial crisis
in 2008/2009 caused the cbn to re-examine the financial health of the banks
which reveaveled that about 10 out of 24banks were in grave financial condition
The recommendation from the examination carried out by cbn led to the
mergers and acquisition of some banks while others others had their licenses
revoked and nationalised
