Ann Crotty

The festive season came a little early for Absa shareholders yesterday as pricing details of Absa’s acquisition of Barclays’ African operations saw the Absa share price surge 5.5 percent to close at R149.50. In London, the Barclays share price ended the day 1.46 percent higher.

The R18.3 billion transaction will see more than 15 percent of Absa Group’s earnings in future coming from Africa, outside South Africa, putting it ahead of Standard Bank, which receives 10 percent of its earnings from Africa. This comparatively high exposure to Africa is expected to see the Absa share price enjoy an improved rating as international investors have shown they are prepared to pay a premium for access to the African growth story.

The transaction will see Absa acquire all of Barclays’ Africa operations, except Egypt and Zimbabwe, in exchange for the issue of 129.5 million shares to Barclays. The shares, which were valued at R141.50 each for the purposes of the transaction, will increase Barclays’ stake in Absa to 62.3 percent from 55.5 percent. At the time of the original transaction in 2006 Barclays’ secured regulatory approval to increase its holding in Absa to 75 percent.

The Absa board would be reconstituted and Absa Group would be renamed Barclays Africa Group “to reflect its greater portfolio of African business”, Absa chief executive Maria Ramos said yesterday. However, she added that the Absa brand would be retained for retail banking and cards. This will be similar to FirstRand, whose retail banking operation is FNB.

Johann Scholtz of Afrifocus Securities said that although the Absa brand was the youngest of the four major banks, it was a very strong brand. “Any attempt to remove it could alienate a large portion of its customer base.”

Scholtz said that he had been “very pleasantly surprised” by the pricing of the transaction, which was on an undemanding price-to-earnings rating of 10 times. He noted that the businesses being acquired from Barclays were generating a return on equity of 22 percent, compared with Absa’s approximated 16 percent ahead of this year’s mortgage-related collapse.

Scholtz described the transaction as a “transformational” one for Absa. The surge in Absa’s share price yesterday meant that by the close of business, the value of the transaction had risen to R19.4bn. This, combined with the strengthening of the rand against the pound, saw the value in sterling terms increase to £1.38bn (R19.2bn) from £1.33bn.

The assets being acquired by Absa in this complex transaction are 68.5 percent of Barclays Bank Botswana, 100 percent of Barclays Bank Ghana, 67.8 percent of Barclays Bank Kenya, 100 percent of Barclays Bank Mauritius, 99.8 percent of Barclays Bank Seychelles, 100 percent of Barclays Bank Tanzania, 100 percent of Barclays Bank Uganda and 100 percent of Barclays Bank Zambia.

The operations in Botswana, Ghana, Kenya and Mauritius account for 80 percent of the total assets in Barclays Africa.

The importance of these operations is why one of the conditions precedent to the deal is that all of them are transferred to Absa.

Other conditions precedent relate to securing the necessary shareholder approval and approval of a swathe of regulatory authorities.

Ramos said that the rationale for the deal was to diversify Absa Group’s earnings geographically.

“Investors will gain exposure to several attractive countries where high forecast gross domestic product growth and under-penetrated credit, capital and insurance markets should produce strong growth in their banking-related revenue pools,” Absa said.

At the end of February, Absa shareholders will have the opportunity to vote on the transaction. Barclays will not be able to vote its 55 percent shareholding on the ordinary resolution that is needed to grant the necessary authority to implement the transaction. Business Watch, page 2