Capital Markets

NIC Bank gains Sh3.2bn on merger update

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From left: NIC Bank managing director John Gachora, NIC Group chairman James Ndegwa, Commercial Bank of Africa (CBA) chairman Desterio Oyatsi and the group managing director Isaac Awuondo when the two institutions announced their merger in Nairobi on January 31, 2019. PHOTO | SALATON NJAU | NMG

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Summary

  • The two lenders first announced they had entered merger talks on December 6.
  • The merger will see it relegate Co-op Bank, with Sh404.1 billion in assets, to fourth place.
  • The merger is currently valued at Sh65 billion, being the book value of the two institutions based on numbers published in the September quarter.

NIC Group gained Sh3.2 billion in market value in Thursday’s trading as investors reacted positively to the announcement that the bank will proceed with its proposed merger with Commercial Bank of Africa (CBA).

The two lenders first announced they had entered merger talks on December 6.

Thursday’s share price rally of 15.9 percent takes NIC’s cumulative paper gain to Sh7.8 billion since the announcement.

The Nairobi Securities Exchange-listed firm’s market capitalisation has now hit Sh23.7 billion, having climbed 49 percent from Sh15.9 billion on the day before the deal was made public.

The merged entity, in which NIC will hold a 47 percent stake while CBA will have the controlling 53 percent equity, will become the third-largest bank in the country with assets of Sh444.3 billion based on September disclosures.

The merger will see it relegate Co-op Bank, with Sh404.1 billion in assets, to fourth place. KCB Group and Equity Group rank first and second with assets of Sh684.1 billion and Sh560.3 billion respectively.

Unified bank

NIC and CBA Thursday also said that the unified bank would be listed on the NSE, ending the earlier uncertainty over whether it would go private or remain on the bourse.

“The combined bank will be a very strong financial player in the region with the ability to drive growth and support Kenya’s economic agenda and that of its neighbouring territories,” said NIC chairman James Ndegwa.

“It also presents an attractive prospect to our shareholders as the strategic benefits from the merged entity materialise and financial synergies are delivered.”

The merger is currently valued at Sh65 billion, being the book value of the two institutions based on numbers published in the September quarter.

NIC’s issued shares currently stand at 703.9 million and an additional 793.8 million shares are expected to be created and allotted to CBA’s shareholders, raising the total volume of stock in the listed entity to 1.49 billion units.

The deal values each NIC share at about Sh43.3, representing a 28.5 percent premium on the bank’s closing price of Sh33.75 Thursday. It is, however, a discount of nearly 10 percent to NIC’s book value of Sh48.1.

End of September

The merger is expected to be completed by end of September. Areas of overlap including branch networks, technology, management and support functions are expected to be reviewed with a view to cutting costs and improving efficiencies.

At the start of the integration process, the company will have 2,360 employees and more than 100 branches in multiple markets, including Kenya and Tanzania.

Upon completion of the transaction, the businesses will be organised into banking and non-banking operations.

The banking unit will comprise lending and deposit-taking businesses.

It will also include a company to house all the digital banking services including the micro-credit platform M-Shwari, which is offered in Kenya.

The non-banking division will comprise stock brokerage, property investment, leasing, insurance agency and other ventures.

Shareholders of CBA will get the larger stake in the combined business based on the relatively bigger size of the private bank and what it brings to the table including a larger asset base and millions of M-Shwari customers.