Sterling Bank/ETB Integration Moves Full Steam Ahead
Category: Mergers & Aquisitions
November 6, 2011
SPECIAL BUSINESS REPORTS:
Although the eventual takeover of Equitorial Trust Bank Limited by Sterling Bank Plc is a done deal, the managements of the two banks are still busy putting finishing touches to a smooth acquisition, reports Festus Akanbi
A chain of programmes lined up for the business combination between Sterling Bank Plc and Equitorial Trust Bank Limited continued last week as shareholders, employees and customers of the two institutions awaited the consolidation of the activities of both banks into one solid institution.
Interestingly, the management teams of both banks have kept mum over the progress made so far, but a competent source close to the deal confirmed that the acquisition of ETB by Sterling Bank has been finalised. The source disclosed that both banks have commenced the integration stage of the exercise and that the whole process may be wrapped up within a six-month time frame.
According to the source, the parties to the transaction are not in a hurry because of the nature of the business combination which is essentially being driven by the Sterling Bank team. “I can tell you that it is an acquisition and Sterling Bank is going to emerge from the process as a formidable bank,” the source said.
Other banks in similar integration modes include Access Bank Plc and Intercontinental Bank Plc, which recently announced the conclusion of their business combination. Ecobank Transnational Incorporated, which also acquired Oceanic Bank International, had a fortnight ago announced the takeover of the latter and is in the process of merging the bank with its Nigerian arm, EcobankNigeriaPlc. Union Bank was acquired by a consortium of investors led by the African Alliance Group and it is in the process of restructuring which industry analysts said will lead to the emergence of new board and new business model for the first generation bank.
A Sterling Bank Affair
Meanwhile, a source privy to the Sterling Bank/ETB arrangement said apart from the retention of the Sterling Bank brand, none of the present board and management of Sterling Bank will be removed at the end of the transaction. Also, Sterling drove a hard bargain during negotiations that will ensure none of the executive directors of ETB will join the Sterling Bank team at the end of the exercise, a development which industry watchers said will pave the way for a smooth transmission.
It was also gathered that the founder and majority shareholder of ETB, Dr. Mike Adenuga has agreed to be less visible under the new arrangement, as he may not opt for a directorship position on the new Sterling Bank board.
“Otunba Adenuga is going to be like any other shareholders of the new bank,” the source disclosed, explaining that the arrangement won't give room for any interference in the way the emerging institution is going to be run when it finally takes off,” another source volunteered.
However, the new bank is poised to benefit significantly from Otunba Adenuga's business conglomerate just like ETB before the latest arrangement. This group consists of Globacom, the second largest telecom operator in Nigeria, Conoil, a downstream oil operations outfit, and Consolidated Oil, an oil exploration and production firm. Adenuga also has stakes and interests in the construction and real estate sectors.
The combination of both financial institutions would create an institution with over N360 billion in customer deposits, N550 billion in assets and more than 185 operational branches across Nigeria. It was gathered that in preparation for the business combination, a committee to take charge of the integration process was set up immediately after the court-ordered meeting of the shareholders which endorsed the business deal.
Meanwhile sources from the two banks said that they are not losing sleep over the branding aspect of the integration process, since Sterling Bank's name will be retained. They, however, explained that both parties are considering the choice of ETB's red colour which is considered to be more appealing than that of the existing colour of Sterling Bank.
ETB is Ready
Investigations also showed that the management of ETB is not resting on its oars as it has also embarked on a number of activities in preparation for the takeover by Sterling Bank.
A source in ETB disclosed that an interim committee was appointed in October with the mandate to systematically wind down the operations of the bank in preparation for the eventual takeover by Sterling Bank. Membership of the committee was said to have been drawn from all the departments of the bank. Other issues to be thrashed out by the committee included the integration of the banks' information technology and staff integration, among others.
One ETB source said some of the core staff of the bank have been officially notified of the takeover, explaining that the arrangement may not cost the staff their jobs. He however could not ascertain whether the contract staff of the bank would be retained by the new owners or not. He revealed that some key staff of the bank are being deployed to convince major customers to stick to the institution, given the seamless transfer of their accounts.
According to the plan, AMCON has injected N64.45 billion to bring the Net Asset Value of ETB to zero as a precondition for the acquisition. In exchange, AMCON will receive 785,193,222 units of ETB shares subsequent to ETB's capital restructuring. Existing ETB shareholders were also expected to have recapitalised the institution up to N8.5 billion from zero.
Sterling Bank was to issue 3,140,772,888 in exchange for the assumption of all assets and liabilities of ETB with the following impact on its ownership: AMCON - 1,570,386,444 units (10%) of total Sterling Bank shares in issue; ETB legacy shareholders - 1,570,386,444 units (10%) of total Sterling Bank shares in issue. Legacy shareholders of Sterling Bank will retain their existing holding, which totals 80 percent of the enlarged Sterling Bank while total Sterling Bank shares in issue will increase by 25% to 15,703,864,432 ordinary shares of 50 kobo each.
Sterling's Chief Strategist Yemi Odubiyi told Reuters recently that the new shares would represent 20 percent of the enlarged bank after the acquistion is concluded. He said existing shareholders of ETB and AMCON will split the stake equally. "Sterling is offering ETB and AMCON shareholders 20 percent of the enlarged entity post-merger. It is not a cash consideration deal. Sterling will issue new shares representing 20 percent of its outstanding shares," Odubiyi said.
Under the arrangement for integration, the two banks are expected to divest from their subsidiaries and associate businesses not within the scope of the new banking licence.
Market analysts said the acquisition will enhance institutional capacity in the new Sterling Bank to meet clients' business requirements and will enable the bank offer an array of financial products and services to a growing and discerning customer base.
The combined bank will initially have a network of 189 branches present in majority of the states. The footprint, according to sources, will bring the bank within reach of its enlarged customer base, engendering banking convenience.
The arrangement is also going to be in the favour of the employees as it provides opportunities within a fast growing and more diversified organisation. There is also room for improved training and career development capacity, while the bank will have greater ability to attract and retain valuable human capital and senior talents.
The bank is expected to tap cost and revenue benefits from economies of scale and operational synergies to achieve optimisation while observers will not rule out an instant leap into the Tier 2 category in the banking sector, with greater stock market liquidity and lower risk perception.
Also expected from the union is increased financial strength and capital position to support future growth; value creation through revenue and cost synergies; leadership by an established management team; and knowledge sharing of best practices across both institutions.
The duo had signed a Transaction Implementation Agreement, which reflected the main commercial terms of reference on which an agreement has been reached in principle by the boards of both financial institutions in close consultation with the AMCON and the Central Bank of Nigeria.
Sterling Bank is one of the banks that survived the joint stress test by the CBN and NDIC in 2009 and until recently, it was considered an attractive partner for foreign financial institutions wishing to enter the Nigerian market. However, going for ETB was seen as a development that ended speculations on the bank's strategic growth options as it finally opted for domestic consolidation over a foreign takeover of its franchise.
Since the CBN's intervention, the future of ETB, long considered unique because of its binding relationships with businesses linked to its major shareholder in the telecoms, real estate and oil sectors, has been less certain. While a few other rescued banks had significant shareholders, none had such a close dependence on trading entities connected to a single shareholder for customer volume. This has made the ETB founder's buy-in to any deal vital for potential acquirers.
ETB was incorporated as a limited liability company on January 30, 1990 and granted a commercial banking licence on February 7, 1990. More than 20 years after it first opened for business, ETB currently has over 90 branches in prime urban locations across Nigeria and is widely regarded for its technology-driven customer friendly service. The institution, which was recapitalised by its owner shortly after the 2009 banking crises, had applied for a regional banking licence under current dispensation.
Sterling Bank Plc achieved impressive growth in profitability in the third quarter of this year as aggressive business development initiatives and better credit risk management improved the balance sheet position of the bank.
The bank's third quarter report for the nine-month period ended September 30, 2011, showed that profit from ordinary activities grew by 91 percent to N2.9 billion as against N1.5 billion recorded in the comparable period of 2010. The report indicated that gross earnings grew 21 percent while the proportion of non-performing loans to gross loans improved to 3.9 percent as against 11.5 percent in December 2010, reflecting the efficiency of the bank's credit risk management framework, which significantly reduced non-performing assets in spite of 28 percent growth in loans during the period.
The nine-month report also showed gross earnings of N28.04 billion while pre and post-tax profits stood at N3.94 billion and N3.68 billion respectively. With earnings per share at 29 kobo, the nine-month earnings outlook indicated earnings yield of about 21 percent, a strong indication of a high dividend yield by the end of the year.