South Africa's Nedbank to spend Ksh.110B to acquire majority stake in NCBA

Nedbank is set to make a major entry into the East African market following the Johannesburg-listed lender’s announcement that it intends to acquire a two-thirds stake in NCBA, equivalent to 66 per cent of the bank.

The transaction, which is expected to be completed by the third quarter of the year, will see Nedbank invest more than Ksh.110 billion. Once concluded, NCBA will become a fully owned subsidiary of Nedbank.

The notice of intention by Nedbank Group to acquire a two-thirds stake of ordinary shares in NCBA from existing shareholders has triggered strong market reaction.

NCBA shares gained 8 percent at the Nairobi Securities Exchange (NSE) following the announcement.

Under the proposal, Nedbank plans to buy out NCBA shareholders through a structure in which 20 percent of the consideration will be paid in cash, with the remaining 80 per cent settled through a share swap.

NCBA says the transaction represents a strong vote of confidence in the bank’s performance, governance and brand.

“Eighty percent of the consideration will be paid in shares of Nedbank trading at the JSE, and 20 percent will be paid in cash. Shareholders who own shares which, when converted, will be less than 200 shares of Nedbank will be paid in cash, and any shareholder who, for regulatory reasons, cannot invest offshore,” said John Gachora, Managing Director of NCBA Group.

NCBA Director of Strategy and Chief of Staff Louisa Wandabwa said the market response reflects investor confidence in the deal.

“We do expect that this is positive news for shareholders. We expect a rally. Since the markets opened, we have seen an 8 percent improvement in our stock price, and we expect that will continue throughout the day as investors take into account the news and really see the opportunity that this unlocks for NCBA,” said Wandabwa.

Despite Nedbank taking a majority stake, NCBA will retain its brand name, with Nedbank expected to use the bank as a platform to expand across East Africa.

In turn, NCBA is set to benefit from a larger balance sheet, access to corporate, investment and wealth management expertise, and new growth opportunities, particularly in markets such as Ethiopia and the Democratic Republic of Congo.

“This will give us access to clients that perhaps before we would not have had access to. We have international clients in this market that tend to prefer international banks. I believe now we are in a position where we can go and compete for those clients with everybody else," Gachora noted. 

"There are Southern African clients who bank exclusively with Nedbank who are here, and we think this gives us an opportunity to go after those clients."

Gachora further assured staff and shareholders that the transaction will not result in immediate disruption to customers, noting that services will continue uninterrupted.

He also said there are no agreed changes to NCBA’s management, emphasising that Nedbank is investing in the current leadership team.

“Because Nedbank does not operate in the region we operate in, there will not be any overlaps between us and them, and therefore we do not expect our employees to be affected negatively," he added.

"You will recall that many of the challenges we faced during integration in the past were because customers were affected quite negatively, systems, people and everything else."