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Diamond Bank Plc and Access Bank Plc - A combination to shake up the banking sector

A combination to shake up the banking sector                                                                 

The Boards of Directors of Access Bank and Diamond Bank yesterday announced a proposed merger of the two banks.  According to the press releases, Diamond Bank shareholders will be receiving a consideration of ₦3.13/share on this transaction, which compares favourably with Diamond Bank’s closing price of ₦0.87/share on December 13, the date of the final bidding offer. Specifically, this consideration would comprise ₦1.00/share in cash and the balance of ₦2.13 will be in form of a share exchange allotted on the basis of 2 New Access Bank (resulting entity) ordinary shares for every 7 Diamond Bank shares held. On the share allotment basis, the value of the New Access Bank is estimated at ₦7.46/share – marginally above Access Bank’s share price of ₦7.45 as at Dec 13, date of the final bidding offer.                                                                

While this transaction may be a surprise, we note that it is well in line with Access Bank’s aggressive growth strategy to become the number one bank in Africa as outlined in its 2018-2022 Strategy presented to stakeholders this time last year. Though post-acquisition integration will be challenging, we highlight (i) Access Bank’s historical experiences from when it acquired Intercontinental Bank in 2012 and (ii) the similarities in both banks operations, as both utilize the Oracle Flexcube as their core banking solution. That said, downside risks persist and the medium-long term gains from this transaction will accrue sufficiently on a well-executed integration process. Overall, we expect a positive reaction from market participants to the news as the market awaits more traction in approvals.