Banks targeted for acquisition are struggling and Equity Bank Group would buy them at a bargain price.
Atlas Mara said the proposed transaction gives it an opportunity to divest from the subsidiaries that have tied up substantial capital
For Equity, the deal expands its operations to Zambia and Mozambique, adding to its current presence in Kenya, Tanzania, Uganda, South Sudan, Rwanda and the Democratic Republic of Congo (DRC).
Equity Group #ticker:EQTY is set to acquire four banks in Rwanda, Zambia, Tanzania and Mozambique from London-listed Atlas Mara in a share swap deal valued at Sh10.6 billion.
The Kenyan bank targets a 62 per cent stake in Banque Populaire du Rwanda and full ownership of BancABC Zambia, BancABC Tanzania and BancABC Mozambique.
The Business Daily established that the banks targeted for acquisition are struggling and Equity Bank Group would buy them at a bargain price.
Atlas Mara will get a 6.27 per cent stake in the Nairobi Securities Exchange-listed firm in which it could further raise its ownership by buying more shares for cash, according to the deal terms.
The multinational, whose office is in the British Virgin Islands, could receive further unspecified compensation from Equity in the future conditional on the performance of the subsidiaries it is offloading.
For Equity, the deal expands its operations to Zambia and Mozambique, adding to its current presence in Kenya, Tanzania, Uganda, South Sudan, Rwanda and the Democratic Republic of Congo (DRC).
Meagre returns
Atlas Mara said the proposed transaction gives it an opportunity to divest from the subsidiaries that have tied up substantial capital while posting meagre returns.
“These four countries contribute less than two percent of total group net income, with an implied aggregate return on equity (RoE) of approximately two percent,and represent substantial carrying costs in terms of capital and liquidity support,” the multinational said in a statement.
The transaction is priced at $105.4 million (Sh10.6 billion) and will see the London-listed firm write off more than Sh3 billion of the premium it had paid in acquiring the subsidiaries.
Equity is expected to call for an extraordinary general meeting in coming months to approve the proposed transaction, which will result in a small dilution of existing shareholders.
Atlas Mara noted that the two parties’ banking subsidiaries in Rwanda and Tanzania will be merged once the transaction is completed around March 2020.
Build scale
Equity Group chief executive James Mwangi told shareholders at the lender’s Annual General Meeting Tuesday that the mergers will help build scale and improve profitability in Tanzania where the company recorded a pre-tax loss of Sh559 million last year.
The proposed deal marks the Kenyan bank’s increased preference of using shares to fund acquisitions.
In 2015, the lender partly financed its acquisition of an initial 79 per cent stake in DRC’s ProCredit Bank by issuing 70.8 million of its shares to some of the subsidiary’s owners, who ended up with a 1.8 per cent stake in the Kenyan multinational.
The DRC deal has proved to be profitable, with the subsidiary now operating as Equity Bank Congo reporting the largest pre-tax profit outside Kenya of Sh1.35 billion in the year ended December.
Atlas Mara said it was betting on Equity to turn around the subsidiaries it is offloading.
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