FACEBOOK MOVES ON INVESTEC
THE US TECHNOLOGY giant made a move into financial services with the acquisition of shares in JSE and London-listed Investec Plc in a deal worth R12.4bn.
The acquisition price placed upon the shares of Investec is R87.50 per share, with an upfront cash payment of R70 per share, as well as two-year preference shares worth R17.50 at 10% non- cumulative interest. This translates into a premium of 36.44% on the current share price (R64.13), and the deal has been structured in such a way as to make contingent the payment for preference shares on the fulfilment of agreed-upon strategic objectives over the next 18 months.
RATIONALE AND STRATEGIC INTENT
Facebook has identified five major synergies that underscore the value to shareholders of this acquisition:
1. Broader access to capital markets to both entities due to diverse geographical profiles.
2. Expansion of financial service offerings to Facebook’s online clients.
3. Investec’s excellent managerial structure with proven international track record, and cultural fit geared towards customer satisfaction and aggressive growth targets.
4. The acquisition of a more mature business with a lower P/E ratio will result in a more stable and higher earnings per share (EPS) going forward.
5. Enhanced value-adds for current advertising partners as Facebook will now offer integrated financial
packages for advertisements.
THE STRATEGIC INTENTION OF FACEBOOK AND INVESTEC MOVING FORWARD IS THREEFOLD:
1. The deal will further develop the Private Equity function of Investec with particular focus on in-house acquisitions in the technology sector.
2. It will create a virtual currency platform to compete with other offerings.
3. The opportunity to extend financial services products to support online transactional services, online advisory ser vi ces, advertising, e- commerce structures, trading vehicles and gifting facilities.
Concurrently Facebook wishes to announce that Investec Plc is in separate negotiations regarding a potential sale of 50.1% of its listed operations to Facebook within the next f i nancial year, ef f ectively resulting i n control of the entire group by November 2014.
THE FINWEEK VIEW
Sorry, we don’t see it. Outgoing First National Bank ( FNB) CEO Michael Jordaan identified Google as a major competitor to banking operators, but Investec plays i n such a different market that the synergies don’t seem to hold up to scrutiny.