Despite the reported haggling about a price, economist and analyst Dr Iraj Abedian believes there is little chance of United Kingdom banking group Barclays’ bid for a 60% stake in South Africa’s biggest retail bank, Absa, being scuppered.
“It’s just too good a deal to walk away from,” he told a television interviewer, adding that it is usual for minorities to try to hold out for a better price.
“It’s all part of the posturing,” said Abedian, who heads up the Pan African Advisory Group.
Notwithstanding some limited contagion from a stronger rand in the short term, he also believes that in the longer term the deal will be good news for the South African economy.
Still, some analysts, who don’t want to be named, believe the price being bandied about is too low. They believe that minorities should not settle for anything less than between R85 and R88 a share, arguing that anything less would not compensate minorities for the profits and synergies Barclays — the UK’s third-largest banking group — would be able to glean from the deal.
While Barclays — which pulled out of South Africa at the height of the anti-apartheid sanctions campaign in the mid-Eighties — has not yet made a formal offer for Absa, the latter has disclosed that a price of about R79 per share plus a final dividend of about R1,80 per share had been discussed, which some minorities have gone as far as describing as “miserly”.
This would mean that the deal would likely cost Barclays somewhere in the region of R31-billion — making it the single biggest foreign investment in South Africa to date.
It is also a huge premium on Absa’s share price at the time when it was first disclosed that the two banks were in talks. At the time, Absa’s share price was about R50 per share. At 10.30am on Tuesday, it was being quoted at R76,81 a share on the JSE Securities Exchange.
Indications are that the deal is unlikely to be sealed before the end of the week. Barclays has made it clear that it will not make a formal offer until it has all the necessary regulatory approvals.
The parties also first have to revert to Minister of Finance Trevor Manuel on certain issues before he is willing to give the deal his final stamp of approval. One of the issues is thought to be the question of possible retrenchments.
Absa said on Monday that the two banks are now considering feedback from Absa shareholders and will determine whether a transaction will receive the requisite support from shareholders on terms acceptable to Barclays, at which stage Barclays will revert to the regulatory authorities for final consideration.
The South African bank added that should an offer be made, “it may or may not be at a premium to the prevailing share price”.
Barclays and Absa have estimated that, should a transaction proceed, it is expected that the combination would produce significant synergies by accelerating the strategic objectives of both parties, improving Absa’s pre-tax profits by approximately R1,4-billion a year four years after completion (after incurring implementation costs of approximately R1,8-billion over the first three years). — I-Net Bridge