It is no longer breaking news that two of Nigeria’s biggest new generation banks, Access Bank Nigeria Plc and Diamond Bank of Nigeria are being merged into one. As at 17th December 2018, the merger of both banks had been announced, and the process of consolidating the merger was officially flagged off. It is expected that both banks would fully be merged with all the requisite paperwork and structure in place by the end of the first quarter of 2019.
However, contrary to some media reports, the merger has not been without controversies. Allegations have been made on both sides of the equation, counter-accusations have also been made, names have been mentioned, and accusing fingers have been pointed. But it appears that all that has ended – at least for now.
This post explores the fine details about each bank, details about the merger, the reasons for it, its potential impact on the stock markets, and the projected potential of the eventual hybrid bank.
First, about Access Bank:
Access Bank Nigeria Plc has established itself as one of the best new generation banks in the country. In the past decade, their stocks have increased exponentially, and they have become more stable in the financial market. On the other hand, Diamond bank has had mixed fortunes. Afer starting out strongly and even dominating the banking sector for a season, a series of administrative problems have seen the bank’s fortunes dwindle significantly. In fact, it was even mooted that the merger with Access Bank was a way to bail them out from folding up!
Why the Merger:
Contrary to popular opinion, inside reports reveal that the word ‘merger’ may not be the most appropriate word to describe the coming together of both banks. As a matter of fact, a better word would likely be ‘take-over’, or ‘acquisition’.
This conclusion was drawn after several statements were made by the executives of both banks. Some of these statements are given below:
Herbert Igwe, CEO of Access Bank noted: “Access Bank has a strong track record of acquisition and integration and has a clear growth strategy.”
He did not speak much about shared value systems or interests with Diamond Bank, but about the strength of his bank in making shrewd acquisitions and ensuring integration.
He further added, that: “this (acquisition) could accelerate our strategy as a significant corporate and retail bank in Nigeria and a champion in Pan-African financial services champion.”
Notice here again that he does not speak about the economic potential of the merger. His comments are more indicative of his perceived impact of the acquisition on his bank’s fortunes. People love to invest and speculate on their prospective returns, which is exactly what it appears that Mr. Herbert Higwe is doing here.
Furthermore, reports of administrative instability and dwindling fortunes at Diamond Bank indicated the bank was on the verge of a total collapse. So, in a bid to save it and recover the bank’s funds and shares, the rescue option was to merge with a more stable bank; or rather, allow an acquisition by a larger bank.
The following statements by Diamond Bank’s CEO, Uzoma Dozie appear to support this supposition. Courtesy of the News Agency of Nigeria (NANS), he said:
“Access Bank and Diamond Bank have complementary operations and similar values. The proposed merger would involve Access Bank acquiring the entire issued share capital of Diamond Bank in exchange for a combination of cash and shares in Access Bank via a Scheme of Merger.”
With emphasis on Access Bank acquiring the entire issued share capital, irrespective of the potential returns, it may be that the transaction isn’t actually a merger, but an acquisition.
A merger indicates a transaction involving two healthy parties coming together to pool resources in order to forge ahead with a common goal. On the other hand, this so-called merger seems to be more of a recovery tactic to save Diamond bank’s fortunes, and it only happened that Access Bank showed the most interest in the take-over.
Now, these are only conclusions made from exclusive findings. Whether merger or acquisition, the fact remains that both banks have been joined together and are now one. The transaction is to be effectively finalized by the end of March 2019, pending the approvals of regulatory bodies and key stakeholders on both sides.
Potential of the Merger:
One of the most obvious potentials this merger holds for both parties is described by the Chief Executive of Diamond Bank, Mr. Dozie Uzoma. In his opinion, the merger of both banks had the potential to create a massive hybrid bank that would be the biggest retail bank Nigeria has ever had.
Impact of the merger on the stock market:
While the announcement of Access Bank’s acquisition of Diamond Bank Plc took many by surprise, wise individuals monitored the movements of the stock market. Truly, the announcement of the merger triggered a drastic appreciation in the shares of both banks on the Nigerian Stock Exchange. According to reports, Access Bank’s shares rose a staggering 9.4%, while those of Diamond Bank appreciated by a similar 9.47 percent.
Diamond Bank shares also traded more units on the day of announcement that they had in the last several months, while Access Bank shares witnessed similar trading activity. In the coming months, both trends are expected to increase.
Perhaps the most important development on this matter is the clean bill of safety afforded stakeholders on both sides. They have been assured on the safety of their funds, which is good news for shareholders.
Impact on customers, investors and investments:
As usual, many customers of both banks – particularly those of Diamond Bank – would be concerned about what would become of their funds now that a merger is in place.
Well, from all indications, there doesn’t appear to be much trouble ahead. However, from all indications, it is certain that Diamond Bank, being the secondary party in the transaction, would experience more changes than Access Bank. While funds on both sides are safe, Diamond Bank customers can expect to be issued new Access Bank account numbers, and their information and details too may have to be updated to reflect the new bank.
Similarly, investors can also be assured of a seamless transition. Nonetheless, it may be wise for cstomers and investors to be on the alert, in case some aspect of the merging process goes wrong.