Firstrand’s expansion plans on the continent hit another snag
THE deal-makers at Sizwe Nxasana’s FirstRand banking group must be wondering what they have to do to buy a bank in Africa.
Though FirstRand is trying to compete on the continent with Standard Bank and the combined Absa-Barclays, its expansion plans hit another snag after it failed to reach agreement on the purchase of Merchant Bank Ghana (MBG). This week, FirstRand said the deal, announced a year ago, had been scrapped as it did not make “commercial sense”.
This is the second major transaction that has fallen dead in the water in recent years.
In 2011, FirstRand had to walk away from acquiring Nigeria’s Sterling Bank due to a disagreement on pricing.
FirstRand now says the failures of the MBG are different from that of Sterling Bank.
FirstRand said that while it wanted to buy 75% of the Accrabased Merchant Bank, despite “all reasonable endeavours” it was unable to reach agreement “on the commercial principles” on the transaction with the Social Security and National Insurance Trust (SSNIT) — Ghana’s employees pension fund that controls 68% of the bank.
The trust will now start inviting new suitors for the stake. Despite the failure of this deal, it seems FirstRand will still “engage” in these new talks.
The collapse of the deal may be a surprise to many because just two months ago, Ghana’s central bank governor Henry Kofi Wampah told Reuters that as a regulator, he had no objection to the deal “and we are likely to approve it soon”. But it seems the Ghanaian shareholders thought otherwise.
The Ghanaian shareholders may well rue rebuffing FirstRand’s advances. MBG’s staff welcomed the takeover, and it seems the bank may be on the brink of collapse after it lent millions to companies that didn’t repay those loans.
So what happened to FirstRand’s pledge that it used “all reasonable endeavours” to close the $91-million deal? And why did the deal take so long to reach a conclusion?
When asked if investors should worry about FirstRand’s ability to close deals, spokesman Sam Moss said “we hope that shareholders understand that the group will not complete a deal that does not make commercial sense”.
Nonetheless, FirstRand said Ghana and Nigeria remain target countries — and claims its organic strategies in both are on track.
The JSE-listed company had hoped to use the acquisition of MBG as a launch pad in West Africa. If it had succeeded, it would have had 22 instant branches in Ghana, a country whose economy is expected to grow by 8% this year.
But analysts said that if the price isn’t right, then FirstRand was right to walk away.
Chris Steward, Investec Asset Management’s head of equity research and financials, lauded FirstRand for exercising capital discipline.
Steward says FirstRand walked away from the MBG deal because it may have refused to accept “politically sensitive” impaired assets.
Afrifocus Securities’s head of research Johann Scholtz, who always had reservations about the deal, said it is not a typical FirstRand deal. FirstRand is known for building new companies rather than buying them — a strategy which led to the success stories of WesBank, Discovery Holdings and OUTsurance. It is also trying to build a new business in India.
Scholtz hoped, however, that FirstRand had not created “bad blood” with regulators in Nigeria and Ghana after walking away from these deals.
Both countries are two of the markets in Africa where South African companies can get the necessary economies of scale and get decent levels of profitability.
“I wont say they [FirstRand] burnt bridges in Nigeria or Ghana, but it is going to be challenging the next time around,” Scholtz said.