Bidding war erupts over Barclays Bank

Source: Bidding war erupts over Barclays Bank – The Zimbabwe Independent June 2, 2017

...Malawian investors fend off local bidders

A BIDDING war has erupted between a Barclays Bank Zimbabwe senior management consortium and Malawi’s First Merchant Bank (FMB) over one of the country’s oldest and most iconic banking institutions currently being disposed of by its British-headquartered parent company, Barclays Plc.

By Bernard Mpofu

Barclays Bank Plc last year announced it was disposing of its African assets, including in Zimbabwe, to focus on British and American markets. Barclays Zimbabwe, alongside the Egyptian business, was not part of the 2013 deal that saw Barclays Africa, formerly ABSA, acquire eight African operations from its parent company due to high local political risk.

In February last year, Barclays Bank Plc announced it would conclude negotiations on the pull-out by June this year. This triggered a stampede for Barclays Zimbabwe.

Top banking sources this week told the Zimbabwe Independent after the current due diligence exercise the takeover of Barclays Zimbabwe valued at US$60 million would be completed. There are two competing bids for Barclays Zimbabwe on the table: one from FMB and the other a management buyout led by bank managing director George Guvamatanga under the banner of Msasa Capital.

This has sparked off a bidding war for the prominent bank.

However, sources said Barclays Zimbabwe management’s bid is not supported by fiscal and monetary authorities due to fears that if the deal goes through, possible failure of an owner-managed bank could cause systemic risk and destabilise the country’s fragile banking sector.

Msasa Capital, a private investment and advisory firm fronted by ex-Investec executive Richard Honey and Border Timbers shareholder Heinrich von Pezold, was tasked by senior Barclays Zimbabwe management to draft the takeover proposal to Barclays Plc.

“On behalf of our client, a Special Purpose Vehicle (NewCo) with equity backing from Old Mutual Life Assurance Zimbabwe Limited (OMLAC) and members of the management team of Barclays Bank Zimbabwe through their investment vehicle Brandserve Enterprises (Private) Limited, we the partners of Msasa Capital, hereby submit an updated Non-Binding Proposal (our initial non-binding proposal was submitted to you on 31 August 2016 with an update letter on 23 December 2016,” wrote Msasa Capital in a letter, dated May 6, to Barclays Plc,.

“While we are aware that Barclays Plc is currently in exclusive discussions with another bidder, we feel that it is important to update you on the progress we have made and that you are aware that we have funding in place and we are in a position to transact in a speedy manner should the exclusive discussions not result in a transaction.

“The Non-Binding Proposal pertains to the purchase of what we now understand will be Barclays Plc’s remaining interest, i.e a holding of 57,68% in Barclays Bank Zimbabwe. Our understanding is that of the 67,68 stake of Barclays Zimbabwe that Plc holds, an effective 10% interest in Barclays Zimbabwe has been committed as part of an empowerment transaction and our Non-Binding Proposal has been prepared based on this understanding.”

Following the rejection of the Barclays Zimbabwe management buyout bid by authorities, workers joined the fray, applying for a court interdict to block the sell-off. Information gathered by the Independent shows that following a due diligence exercise done by the Reserve Bank of Zimbabwe (RBZ) and the Reserve Bank of Malawi on the proposed deal between FMB and Barclays Zimbabwe, the process is nearing completion.

Apart from Barclays Bank Plc, major shareholders of Barclays Zimbabwe include Old Mutual Life Assurance Company (OMLAC) and FED nominees which own 3,44% and 2,45% respectively.

According to a letter written by Msasa Capital, OMLAC will become the majority shareholder in Barclays Zimbabwe, meaning Old Mutual will now effectively control three local financial institutions — Cabs, MBCA and Barclays Zimbabwe.

Banking executives say this could result in clashes with the Competition and Tariff Commission. “The combination of Old Mutual, with its strong institutional reputation, significant scale and financial strength both in Zimbabwe and internationally, working alongside the management team, who are currently managing the business and importantly have strong relationships with Barclays Zimbabwe’s important customers, working together as owners of NewCo the controlling shareholder of Barclays Zimbabwe will provide a strong, stable, engaged and committed shareholder for Barclays Zimbabwe going forward,” the letter says. “As a result, we believe that our approach is unique and would allow NewCo to preserve the value of the Barclays Zimbabwe platform now and build on this in the future as Zimbabwe emerges from its current challenges.”

As it becomes increasingly apparent FMB could seal the deal in a fortnight, junior managers at Barclays Zimbabwe have also joined the bidding war by seeking to interdict the process.

They are arguing the bank cannot sell off its stake to other investors without first offering the shareholding to the workers.

However, correspondence seen by this paper shows Barclays Zimbabwe lawyers Scanlen & Holderness have advised the bank’s board to consult the works council, although it has the prerogative on whether or not to accept workers’ proposal.

“We advise that the board should proceed to consult the works council about the proposed transaction. The works council must be given an opportunity to make representations to the board in connection with the proposed transaction,” wrote Scanlen & Holderness in a letter, dated May 24, addressed to Barclays Zimbabwe company secretary.

“The board may accept or dismiss the representations made. The reasons taken for the board’s decision must be provided to the works council. There is no right of appeal against the board’s decision. The conciliation process can be settled by commencement of the consultation process. This will render the conciliation process inconsequential.”

However, questions are being asked behind the scenes about FMB’s financial capacity to take over Barclays Zimbabwe given that Crane Bank, owned by one of its directors Rasik Kantaria, was declared undercapitalised by the Bank of Uganda last October. Kantaria, also the chairperson of Kenya’s Prime Bank, is the second largest shareholder in Uganda’s Crane Bank.

“Questions are being raised because of a determination by Bank of Uganda that Crane Bank Limited is a significantly undercapitalised institution as defined by law, poses a systemic risk to the stability of the financial system and that the continuation of Crane Bank’s activities in its current form is detrimental to the interests of its depositors. Accordingly, Bank of Uganda has appointed a statutory manager of the affairs of Crane Bank Limited and suspended the Board of Directors of Crane Bank Limited,” Uganda’s central bank said in a statement last year.

Asked if RBZ is aware of integrity gaps on some of FMB’s directors and their financial problems, local central bank boss John Mangudya said: “The Reserve Bank has not expressed any objection to the transaction.”