Equity pulls the plug on plan to buy Atlas Mara

Equity Group yesterday walked out of a potential deal to acquire other lenders in four African countries.

Although Equity attributed the collapse of the buyout of Atlas Mara’s banking businesses in Rwanda, Tanzania, Zambia and Mozambique to uncertainty fueled by the Covid-19 pandemic, signs of strain in the talks had been evident.

Things had been stormy at Atlas Mara, with the founders, including a former Barclays executive Bob Diamond, being kicked out of the board.

This saw an extension of the negotiations that were initially set to expire last January, signalling that Equity was developing cold feet in the conclusion of the Sh10.7 billion share swap deal.

Atlas Mara was to be issued shares in Equity Group in exchange for 62 per cent stake of its bank in Rwanda and complete stakes in lenders in Tanzania, Mozambique and Zambia.

Need for caution

Equity Group Chief Executive James Mwangi said in a notice yesterday the decision to abandon the proposed acquisition was informed by the need for caution in its expansion. “This decision is consistent with the board’s view of the uncertainty of risk, which precipitated the proposed withdrawal of Sh9.5 billion dividend payout to shareholders,” he said in a statement.

Equity reversed the decision for the payout following Covid-19 crisis and its attendant ravages to the economy.

Among the issues at the heart of the now-stalled deal with Atlas Mara was the valuation of the share swap as the market value of Equity has significantly risen since the acquisition negotiations started.

“During the extended period, the two parties would continue further discussions to try and reach mutually acceptable commercial terms with respect to the proposed transaction or a variant of it,” said Mwangi.

Had the deal gone through, Equity’s footprint would have immediately been increased to eight African countries, as it is in Kenya, Uganda, Tanzania, South Sudan, Rwanda and the Democratic Republic of Congo. “The board has considered events that have taken place since January when the two parties agreed to extend transaction discussions and particularly the impact of the Covid-19 pandemic to the world and economies in which Equity Group operates,” Mwangi’s statement read.

Equity indicated that it had restructured a quarter of the loans it had issued to its customers by up to three years as part of the internal changes that called for a review of the expansion.

Better deal

Disruptions to businesses have meant massive job losses or reduced incomes for millions, which reduced their individual capacities to service loans. Cumulatively, lenders had as of mid-March restructured loans worth Sh190 billion since the coronavirus landed in Kenyan.

But since the collapsed transaction did not involve the exchange of money, it is plausible to suggest that Equity may have been reluctant to conclude the deal on the earlier terms, while a better deal was impossible to attain.

Mwangi had, in January, indicated that parties were yet to sign detailed transaction agreements, while the Binding Term Sheet had expired.

Financial analysts approached for comment on the collapse of the deal indicated that the initial plan might have been to consolidate Equity’s market positions in Rwanda and Tanzania, where the lender already has a presence.