Con­flicted

Three Bidvest direc­tors on boards of banks as Joffe at­tacks mar­ket

Finweek English Edition - - COMPANIES & MARKETS - BRUCE WHIT­FIELD

IF BIDVEST SUC­CEEDS in its un­so­licited R1,4bn takeover bid for strug­gling bank­ing min­now Mer­can­tile, three long-serv­ing direc­tors – in­clud­ing chair­man Cyril Ramaphosa – may fi­nally need to make piv­otal choices re­gard­ing the board seats they hold to avoid sug­ges­tions of conflicts of in­ter­est. Ramaphosa, along with Doug Band, serves on the boards of both Stan­dard Bank and Bidvest, while Stephen Koseff, a di­rec­tor for al­most 15 years, is also CEO of In­vestec.

Bidvest isn’t com­ment­ing fur­ther on its bid but is likely to ar­gue the small scale of its bank­ing op­er­a­tion doesn’t put it in di­rect competition with the rest of SA’s bank­ing sec­tor. It’s also likely to ar­gue – as it has in the past, where there were po­ten­tially con­tentious is­sues – af­fected direc­tors could be re­cused from the de­ci­sion­mak­ing process. Bidvest has a board of 23 mem­bers: three fewer wouldn’t af­fect its abil­ity to strike a quo­rum.

While Bidvest might protest any sug­ges­tion of conflicts of in­ter­est, there’s a grow­ing strate­gic in­tent by the in­dus­trial be­he­moth to play an in­creas­ing role in fi­nan­cial ser­vices.

While mar­ket­ing it­self as a niche fi­nan­cial provider spe­cial­is­ing in for­eign ex­change, Bidvest Bank is ac­tu­ally ac­tive in gen­eral bank­ing ser­vices, and the pro­posed Mer­can­tile deal is aimed at de­vel­op­ing its abil­ity to serve re­tail clients. In ad­di­tion to pro­vid­ing for­eign ex­change to both re­tail and cor­po­rate mar­kets it also takes fixed de­posits, en­gages in ve­hi­cle fleet and as­set fi­nance and pro­vides re­tail bank­ing ser­vices through its out­lets and grow­ing ATM net­work. Mer­can­tile has 15 branches coun­try­wide – barely a speck in re­la­tion to the broad spread of out­lets op­er­ated by the coun­try’s Big Four banks. Nev­er­the­less Mer­can­tile is the lat­est de­vel­op­ment in Bidvest’s mount­ing am­bi­tion to pro­vide a chal­lenger brand in SA’s bank­ing sec­tor.

Bidvest’s 35,5c/share of­fer is at a pre­mium to the pre-bid rul­ing price of 25c and is en­tirely de­pen­dent on whether 92% share­holder – Por­tu­gal’s Caixa Geral de Depósi­tos (Caixa) – ac­cepts the deal. At the time of writ­ing a re­sponse from the Caixa board was im­mi­nent.

Mer­can­tile, as a listed en­tity in the South African mar­ket, has hardly cov­ered it­self in glory, sel­dom trad­ing above 30c and bat­tling to box above its weight in a mar­ket dom­i­nated by es­tab­lished play­ers. An ap­proach last year by small cor­po­rate bank Sas­fin was called off by the big­ger group with­out ex­pla­na­tion just months af­ter the pair signed a mem­o­ran­dum of un­der­stand­ing that made it clear Caixa might be a will­ing seller of its as­set.

An­a­lysts said a deal of this kind would put Bidvest Bank on a firmer com­pet­i­tive foot­ing, as it would broaden its client base and prod­uct of­fer­ings. Mer­can­tile im­ple­mented new bank­ing sys­tems last year, which an­a­lysts say could prove in­ter­est­ing to an ac­quirer.

This isn’t the first time Finweek has drawn at­ten­tion to po­ten­tial conflicts of in­ter­est on the Bidvest board with re­gard to its bank­ing op­er­a­tion. In 2007 we high­lighted the conflicts associated with the launch of Bidvest Bank out of the wholly owned Ren­nies fran­chise. Then Gill Mar­cus – who was on the boards of Bidvest and Absa, where she was chair – stood down. If the Mer­can­tile deal does go ahead would it leave Ramaphosa, Band and Koseff with any other choice?

CYRIL RAMAPHOSA, DOUG BAND AND STEPHEN KOSEFF

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