The I&M Bank building in Nairobi. After the takeover, the bank's shareholders will have a controlling stake in the holding company. Photo/FILE
What you need to know:
City Trust will become the holding company of I&M Bank in a transaction that will see the bank’s shareholders exchange their shares for those of City Trust in what has been described as a reverse takeover.
Under the deal, shareholders in the larger I&M Bank will be offered 13.62 shares in the investment firm for every share they hold in the bank.
The merger of listed investment firm City Trust with I&M Bank through a share swap transaction will be worth Sh29 billion in a deal that will see the private lender list on the Nairobi bourse.
City Trust will become the holding company of I&M Bank in a transaction that will see the bank’s shareholders exchange their shares for those of City Trust in what has been described as a reverse takeover.
This is where a private company’s shareholders exchange their shares for those of a public company, making the non-listed company a publicly-traded one.
Under the deal, shareholders in the larger I&M Bank will be offered 13.62 shares in the investment firm for every share they hold in the bank in what will see the investors granted 363,722,034 new City Trust shares, according to the offer document seen by the Business Daily.
The new shares will be offered after the split of the stock into five parts, valuing each at Sh80 based on current trading prices of City Trust at the bourse of Sh400 in what values the deal at Sh29 billion.
The deal gives the mid-tier lender a market valuation of Sh31 billion given that City Trust had a 7.28 per cent stake in I&M Bank before the takeover transaction.
“This transaction enables I&M achieve its long-term objective of listing its shares on the NSE while simultaneously providing liquidity for its institutional, corporate and individual shareholders,” says the offer document guiding the transaction.
“For City Trust, it will facilitate the increase of the shareholder base of CTL (City Trust) and thereby enhance liquidity of the company shares on the NSE.”
The investment firm is listed on the alternative market segment of the NSE and its deal with I&M Bank will help it to meet the minimum capital threshold required for listing on the main stocks market.
City Trust had a paid share capital of Sh28.6 million in July, which was below the threshold of Sh50 million required to list on the main investment segment of the NSE. The combined unit will have a share capital in excess of Sh2.8 billion.
The bank’s assets stood at Sh108 billion in 2011 compared to City Trust’s Sh334 million. The investment firm returned a profit of Sh48.4 million in the year to July compared to the lender’s Sh3.4 billion in the year to December 2011.
City Trust had a market value of Sh2.2 billion Tuesday compared to the bank’s valuation of about Sh40 billion.
So far, the deal has been promoted as if the smaller City Trust is buying I&M Bank based on shareholder notices.
“This transaction is a reverse takeover. I&M investors will have the controlling stake in the holding company," said a director of City Trust who did not want to be named before the approval of the deal on February 22.
The promoters of the offers have applied to the Capital Markets Authority (CMA) to be exempted from the rule that requires firms that list on the main segment of the Nairobi bourse to have at least 1,000 shareholders for six months.
It will meet this rule by having an investment vehicle christened Biashara Securities Limited—which owns 13.92 per cent stake in I&M Bank split its holding among its owners who stand at nearly 1,000.
The bank will become a subsidiary of the holding company, which will be called I&M Holdings with the bank’s owners being the majority shareholders.
City Trust shareholders will see their stake in the bank grow to 7.3 per cent from the current 7.28 per cent.
At Sh31 billion, the promoters of the transaction say I&M Bank is undervalued on grounds that City Trust shares are trading at discount.
“City Trust shares are trading at a discount, this being attributed to the indirect holding of the bank shares,” says the offer document.
In October last year, City Trust warned investors that it was about to close a deal that would have significant impact on its share price, which Tuesday hit its peak at Sh400 compared to Sh358 on December 24.
The share has gained 57 per cent over the past year and it will be frozen from trading on March 5 and the new entity will be listed on June 11.
The reverse takeover has helped I&M Bank without the troubles of going through an initial public offer (IPO) as well as regulatory review and approval scrutiny.
