September 27, 2011 3388 VIEWS

Sunday, September 25, 2011

Next Monday, the biggest and most important steps will be taken in the march towards the recapitalisation of the banks rescued by the Central Bank of Nigeria . Mahmoud Lai Alabi, the Group Chief Executive Officer of Intercontinental Bank Plc will be leading his management team to present its stewardship to the shareholders of the bank.  He and the board will be giving the same shareholders reasons why they are recommending that they approve a combination deal between their bank and Access Bank Plc. 

Mergers and Acquisitions (M&A) can be very tricky. Sometimes they can get really hostile and at other times they can run smoothly, once shareholders see the wisdom in allowing another entity take over

their own. When it is smooth, it is because shareholders see much value in what is put before them. That Intercontinental is still around is, perhaps, testimony to the work that the Alabi-led team has done and many shareholders would be looking forward to hearing him make the case that this is a deal that they must support. 

In late 1999, Vodafone Airtouch, as it was then called, was the second biggest company on the London Stock Exchange. In November of that same year, it made an audacious £79 billion bid for the German group, Mannersmann, a bid that became a hostile battleground for Chris Gent, then CEO of Vodafone and Klaus Esser, then CEO of Mannersmann. I am sure that students of mergers and acquisitions (M&A) have that as one of the cases they have to go through in the course of their studies. 

There was something instructive, however, about a statement made by Chris Gent in the November month, when stories about the bid began to make newspaper headlines in both the United Kingdom and Germany. Gent said the company belonged together! It is understandable to hear a suitor say the object of his interest belong together. But Wednesday, I heard something close to that message again. 

“You can say that if two banks were to merge in Nigeria , the two with the highest potential of a successful merger were Intercontinental and Access Bank,” Alabi says confidently. He has his reasons for his confidence. He talked about a combination with close synergies, one that means cost efficiencies in terms of putting the two banks together when the time comes. 

He gladly tells you that when bidders were invited to take a look at Intercontinental, there were many

who came and left because they felt that the challenges were daunting. Of all that came, he smiles as he says this, only one stayed.

 “There was no single potential bidder who did not change his or her mind after examining our books. So, you begin to ask yourself, why did Access Bank stay? My conclusion is that in spite of the challenges, the huge hole, and high illiquidity, I think what Access saw was the synergy between the two organisations. First of all, we run the same operating platform, we run the same banking software (FLEXCUBE), we have similar policies when it comes to culture, staff.

 “If Intercontinental Bank had kept its house in order, had good credit, and kept with good corporate governance, maybe they would have talked with them but on different levels. The synergy between the two banks is what might have kept faith in Access. The technology is identical, hardware identical, the software identical, the banking applications are the same and the culture of recruiting are similar. As the managing director of this bank and having spoken to so many, there were banks I concluded that the combination process was going to be very expensive. In the case of Access, the potential, the similarities of the operating platform, the similarity of the technology, the similarities of other policies make the combination exceptionally high.” 

Alabi has been in the banking and finance industry for such a long time to know the intricacies involved in stabilising a bank and making it attractive for investors to take interest. You will expect him to tell shareholders to vote yes so as not to fall the way of the banks already nationalised. But he tells you that there is even more value to be had once the acquisition goes ahead. 

He is very bullish on that. “First of all, this is a bank that would be capitalised beyond minimum requirement. The minimum ratio for capital adequacy is 10 percent. By the time we take off, this bank will be capitalised to the extent that its capital adequacy ratio will be at least 15 percent. Its books will be cleaner because we would have off-loaded most of the non-performing loans to AMCON. So, we have a bank with a cleaner and a strong balance sheet; one with a strong capital and then merged with a partner where there is a strong synergy. So, I expect the value creation should be very high and I expect that it would translate to higher shareholder value.” 

Alabi wants shareholders to see it from the point of getting back from nothing to something, giving the negative shareholder fund of over N350 billion, “which means the shareholder had nothing left,” he says. He says further that “from a situation of hopelessness, we are going to give them something. Initially what we got from Access Bank was five percent for the shareholder. That is 20 percent to be distributed between AMCON and the existing shareholders. But by skillful negotiation and hard work, we have been able to improve the shareholders’ value to 10 percent. Originally, they were supposed to get one share of the newly recapitalised bank in exchange of 14 shares they were holding. By the renegotiation, it is now one share for every seven shares. 

“From where we started from, I think we have been able to create some reasonable value for the shareholders. I have compared what the shareholders of Intercontinental Bank would get relative to

other shareholders. I feel satisfied beyond every reasonable doubt that they have a reasonably fair value given what they are getting, compared to what others are getting and secondly, where we are coming from.” The industry will be looking forward to how shareholders will respond to this on Monday.



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