A NEW frontier opened in the battle for bank market share in sub-Saharan Africa when Absa and Barclays on Thursday combined assets in a deal valued at more than R18bn.
Standard Bank is the largest bank by assets in the region, and Barclays has had a long-held ambition to integrate their African businesses and increase its market share on the continent. The deal also implemented Barclays’ plan to increase its stake in Absa.
Absa shares closed 5% higher at R149.50, as investors reacted positively to the transaction, which is expected to close in the first half of next year.
The deal — first mooted in August — would be achieved by transferring the ownership of the Barclays Africa portfolio to Barclays Africa Limited, and Absa acquiring 100% of the company.
Absa will fund the deal by issuing 129.50-million shares to Barclays, which will also result in Barclays increasing its shareholding in Absa from 55.5% to 62.3%.
Absa Group will be renamed Barclays Africa, but it will retain the Absa brand in South Africa, including its red corporate colours.
Barclays bought a controlling stake in Absa in 2005, but had since wanted to create a structure that ensured that it and Absa would not compete for the same markets in sub-Saharan Africa.
Absa and Barclays said in a statement on Thursday that assets being acquired by Absa are in Seychelles Botswana, Ghana, Kenya, Mauritius, Tanzania, Uganda and Zambia, and the Barclays Africa regional office in Johannesburg.
Maria Ramos, Group CEO of Absa and CE of Barclays Africa, said on Thursday Barclays’ operations in Zimbabwe and Egypt were excluded from the deal due to economic and political challenges in those countries, making it difficult to properly value them.
Barclays Africa is to become the largest retail bank in sub-Saharan Africa by customer numbers, with more than 14.4-million at more than 1,300 branches.
Ms Ramos said she did not expect problems in getting shareholder and regulatory approval in the affected countries.
"We are tremendously excited by the opportunities for growth across the continent and the geographically diversified earnings potential that a combined business would deliver," she said.
Barclays CEO Antony Jenkins said on Thursday bringing the units together was an important step in the group’s goal of becoming the "go to" bank in Africa.
Ratings agency Fitch said on Thursday the deal could improve efficiency for Barclays and allow it to expand in Africa, which delivered 21% of its pretax profit in 2011. But it said until the earnings from the rest of Africa made a greater contribution to Absa’s earnings, they were unlikely to provide much diversification benefit to Absa or be supportive of a pan-African strategy.
Adrian Cloete, equity analyst at Cadiz Asset Management, said the transaction gave Barclays a single entry point for its sub-Saharan African operations.
"When the proposed transaction is successfully consummated, Absa will also have a very significant exposure to the exciting growth markets in Africa," he said.
Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town, said on Thursday Absa would acquire a "great portfolio" of African assets in growing markets.
"They will have a lead on others in terms of serving South African corporates expanding into Africa," he said.