Kenya's I&M Bank has agreed to take over Giro Commercial Bank Ltd through a combination of cash and share swap transaction.
Details of the value of the transaction remain under wraps but deal-makers estimate Giro Bank to be worth between $42.7 million and $52.8 million.
Sources privy to the transaction told The EastAfrican that partial payment for the Giro Bank business through cash would help I&M Bank shareholders reduce dilution of their shareholding.
“The current shareholders will only be diluted by six per cent,” said a market analyst.
The deal will see I&M Bank pay close to Ksh5.66 billion ($54.79 million) and create up to 28 million new shares to be distributed to the Giro Bank shareholders.
An analysis of the market value of Giro Bank based on the audited 2015 financial statements using the price-to-book value ratio shows that the lender is valued between Ksh4.41 billion ($42.69 million) without a premium and Ksh5.66 billion ($54.79 million) with a premium.
The premium is related to the goodwill of the business as a going concern, its branch network and the management.
Under this valuation I&M Bank shareholders would pay between Ksh2.21 billion ($21.34 million) and Ksh2.83 billion ($27.39 million) to Giro Bank shareholders.
In addition, the bank would create between 22 million and 28 million new shares to be distributed to the new shareholders of Giro Bank.
This will lead to dilution of the existing I&M Bank shareholders by between six and seven per cent.
Giro Commercial Bank’s net profit for the 12 months to December 2015 grew 14 per cent to Ksh452.43 million ($4.38 million) from Ksh395.58 million ($3.82 million) in the previous year.
Total shareholder funds went up 16 per cent to Ksh2.83 billion ($27.39 million) from Ksh2.42 billion ($23.42 million).
I&M and Giro agreed to combine their businesses on September 5, 2015 but the transaction is yet to be cleared by the regulator, leaving the management and the shareholders in some confusion.
I&M Bank has a market value of Ksh39.2 billion ($379.52 million) with its stock on the Nairobi Securities Exchange trading at Ksh100 ($0.96) per share.
Its shareholder funds are estimated at Ksh25 billion ($242.04 million).
The bank entered into an agreement with shareholders of Giro Commercial Bank Ltd for the sale and purchase of shares comprising 100 per cent of the issued share capital of Giro Commercial Bank Ltd.
Under the deal, the banking business of Giro Bank is to be merged into I&M bank Ltd.
I&M Bank will acquire five of the seven branches owned by Giro Commercial Bank, including all staff except those aged 60 years and above.
Giro Bank’s two outlets in Kisumu and Mombasa where I&M Bank has operations will not be acquired.
The completion of the transaction is still subject to approvals from the Central Bank, Capital Markets Authority, the Competition Authority and shareholders.
I&M Bank currently has operations in Rwanda and Tanzania with 16 and nine branches respectively.
It controls a 50 per cent shareholding in Bank One Ltd in Mauritius and is also looking to acquire small banks in Uganda in a bid to enter that market.
The Rwandan subsidiary where I&M Bank commands a 55 per cent stake is set to go public with the government selling off 19.8 per cent shareholding through an initial public offering (IPO).
I&M Bank is a wholly owned subsidiary of I&M Holdings Ltd, whose shares are listed on the NSE.
Its shareholders include French development financial institution Proparco and the German Investment and Development Corporation, as well as local and foreign institutional and individual investors.