Within the last seven days, the market capitalization of Diamond Bank on the Nigerian stock exchange gained the equivalent of 20%, representing about NGN4.4 billion ($12.11 million). This performance is due to the announcement of a principle agreement that could lead to a merger with Access Bank, another large bank in Nigeria.
Access Bank is indeed offering to pay NGN3.13 for each of Diamond Bank’s shares that were valued at NGN0.8 each before the announcement. It is thus understandable that short-term investments were made in the market to take advantage of the potential gains that could be achieved from this offer.
However, there are two limits to that way of seeing things. First, the positive margin to be realised on this operation involve only investors that were in the capital of Diamond Bank since October 2015, when the shares consistently went below NGN3. In addition, only NGN1 will be paid in cash per share; the remaining NGN2.13 will be compensated at the pro-rata of new shares created within the capital of Access Bank.
A big potential loser currently identified is the American capital investment firm Carlyle Group. Carlyle entered into the capital of Diamond Bank in November 2014, with the exit of British investment fund Actis, by investing $147 million or NGN7.38 per share. According to ARM Research analysts, the offer made by Access Bank reduces Carlyle group’s short-term losses to 11.4 billion. In addition, the American investor will lose its status of core shareholder in a large Nigerian bank. The dilution of its shareholding in the capital of the new group, which will eventually be created after the merger, will give it control over only 3.3% of the group.
Idriss Linge (Ecofin Agency)