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Access-Intercontinental M&A Update; Investment Import




January 13, 2011 Meristem Research
Background Note
The 2008 economic meltdown and financial market crash coupled with the strategic role of the banking system in the whole gamut of activities in the economy triggered the CBN to commission a special examination of the 24 banks operating in the Nigerian banking space. Of the banks, 9 were found deficient and in grave situation.
However, one  of the banks, WEMA bank, and UNITY bank, were not in critical conditions but had liquidity challenges and very poor asset quality characterized by huge Non-Performing Loans. A total of NGN620bn in convertible loan was injected into these banks and other initiatives were taken to keep them operational and minimize systemic risk given that some of these institutions are systematically Important Financial Institutions.
The need to re-capitalize these banks became the topmost priority and of the options available, investment by strategic core investors proved most optimal. The process was laid out and discussions ensued on the M&A.
The Case of Access and Intercontinental Bank
Access bank showed interest in intercontinental bank after due diligence in examining its books. The negotiation process continued and the MoU on the business combination was signed. However, the ex-while MD, Erastus Akingbola in conjunction with some other directors filed a suit at the court challenging the M&A and petitioning that the deal be stalled. To this end, an ex-parte injunction was obtained at the Federal High Court, Lagos on May 30 restraining the sale of Intercontinental Bank by CBN. However, at the full court hearing today June 14, 2011, the case was dismissed thus giving the leeway to the parties involved to continue the acquisition process.
Investment Import
The initial ex-parte injunction spurred an immediate investor reaction as there was a persistent drop in the share price of INTERCONT. We believe the latest judgment will trigger further activities in the two stocks, ACCESS and INTERCONT. The branch expansion footing that ACCESS will benefit if the deal is consummated will further strengthen its presence as it strives to deepen its retail business. On the other hand, investors will also want to take advantage of the likely mispricing in INTERCONT in the interim. This development is very key as most other M&A deals have collapsed and this gives speculators the opportunity flex their event driven trading strategy by profiting from this merger arbitrage.
Important Update – June 14, 2011
Court vacates injunction to put Access + Intercontinental M&A back on track
Intercontinental Bank has said the recapitalisation deal with local peer Access Bank was on course after a court overturned an injunction sought by shareholders seeking to block the deal. "Following today's vacation of the High Court's injunction ... the management of Intercontinental Bank has assured that it would speedily conclude its recapitalisation programme ahead of the central bank's deadline in September," Intercontinental said in a statement.
Under the Permission of: Research Team, MERISTEM SECURITIES LTD., 124 Norman Williams Street, South West, Ikoyi, Lagos. P.O Box 51585 Falomo, Ikoyi, Lagos. Phone:234-1-2717350-5; Fax: 234-1-2717356, 2690118.
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