FROM the result of the recent examination conducted by the Central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Commission (NDIC), at least eight banks were taken over by the CBN. As a result of this, there are talks in the market that it is likely that some of these banks would be acquired, merged or taken over. This has to do with the statement earlier made by the governor of the CBN, who is of the opinion that the number of banks in Nigeria should be reduced from the current position of 24 to 15.
In this kind of scenario, what does the investor stand to benefit? History will likely repeat itself. The investors should be conscious of the fact that there would be merger, takeover or acquisition, and he should consider what would be his benefit if any of the three happens.
Generally, when there is a takeover, an investor should ensure that he is not in the bank that is being taken over. This is because as a senior partner you can’t benefit less than the other partner in any kind of arrangement. This has been witnessed in previous takeovers, such as the case of the acquisition of Universal Trust Bank and Broad Bank by Union Bank. These two banks ended up regretting because at the end of the day, it was almost 35 units of UTB were equalled to one unit of Union Bank. It was the same story for Gamji bank which was later converted to International Trust Bank which was taken over by Oceanic Bank.
It is very glaring that as an investor you may not benefit much if you remain in a bank that is going to be taken over rather you will be better off if you are in the parent bank; that is the bank doing the takeover or acquisition. If possible identify those banks that would be taken over and the one that would be taking over so that you can reposition yourself, because if you end up in a bank that is being taken over you would end up with peanut.
The story is the same in the case of the acquisition; it makes no difference if you allow your bank to be acquired. You will find that once the bank is acquired you are also going to end up with peanut. In most cases, shareholders of the banks that were acquired end up getting peanut. Take for instance FSB International when it was acquired by Fidelity Bank most of their shareholders did not benefit much, and those that benefited most were the shareholders in Fidelity Bank. The story is the same with Bank PHB. When Platinum took over Habib Bank those that were holders of Habib Bank did not benefit much after the take over.
Meanwhile before the take over, Habib Bank was worth more than five times the value of Platinum. So we are saying the investors should be conscious of what is going on around to know if there is the possibility of a take over, merger or acquisition.
As an investor, you find out that the only relief is a merger. If there is a merger you will get an equal interest wherein your shares may be merged in a better ratio just as in the case of Standard Trust Bank and UBA. When they came out they all benefited.
However, today the shareholders of Standard Trust Bank had the upper hand over the shareholders of UBA stand and the merger was more beneficial to them than the original shareholders of UBA though there was a level playing ground.
So, I would advise an investor to look at the situation and know if his bank is likely to be going to be taken over or if his bank likely going to be acquired or the bank is going to be merging
The investor look at the situation and find out who the senior partner is, if it is a merger, and then he should try to be with the senior partner rather than waiting until after merger because anything can happen and at the end of the day it would be to his disadvantage.
If the bank you have a holding in is likely going to be taken over or acquired, then it is clear that the bank would be the junior partner and once you are a small partner you get peanut.
So, my advise to the investor is to watch out and ensure that if it is a take over or acquisition make he is in the big bank that will take over so that whatever the benefit that would be derived from the take over or acquisition would be to your advantage. Because you will benefit more if you are in the main bank rather than the one that is going to be acquired.
So also if it is merger you must find out the details, because in a merger there is the senior partner. And make sure that as an investor you are with the senior partner so that whatever happens at the end of the day you will be better off.
And the senior partner is the bank that has more strength in the financials at the time of take over. In the merger between UBA and Standard Trust Bank the latter was the senior partner. The chief executive of STB took over the management of the UBA and you can be sure of the fact that the shareholders of STB were better off than the shareholders of UBA even though the name UBA was retained while that of STB disappeared.
So investors should be aware and they should start making their analysis today. Because it is better to have a five per cent holding that is performing than 100 per cent thai is nonperforming.
However, being taken over or acquired is better than being liquidated because if your bank is liquidated you will be the loser.