National Bank Responds to KCB Takeover Bid

National Bank of Kenya (NBK) has published a circular over the proposed takeover by the KCB Group.

KCB has also now published their own circular for NBK shareholders, that has been approved by the CMA and which details their side of the deal.

NBK Circular Highlights:

  • The board of NBK recommends shareholders approve the Kshs 9 billion deal even though they value their share at Kshs 6.10  as no competing offers have been received so far, and the bank, while strong, needs additional capital to meet regulatory capital and grow its business. They add that the Government has a policy of sector consolidation to create strong banks.
  • NBK is the thirteenth largest bank in Kenya, a Tier-2 bank.
  • KCB has proposed that NBK continue to operate as a separate subsidiary of KCB for two years during which there will be no staff changes. An integration will come after, along with an organizational structure review, which may lead to a reduction of the workforce and “optimization” of the distribution network. i.e. branches, ATM’s and agents. NBK has 1,356 staff, serving about 650,000 customers.
  • Deal a foregone conclusion?: After the re-designation of the preference shares, NBK’s two key shareholders, the Government of Kenya and National Social Security Fund own a combined 93.23% of the bank’s shares.
  • KCB valued NBK at Kshs 5.6 billion. NBK has 48,987 shareholders who will receive 147,383,968 ordinary shares in the share capital of KCB, equivalent to approximately 4.59% of the share capital of KCB.. The NBK Board appointed Standard Investment Bank (SIB) to independent advise them on the market value of NBK and SIB arrived at a fair value for each NBK share of Kshs 6.10 – the result of combining the dividend discount method (5.41), net assets multiple (6.62) and historical share trading price (5.01).
  • Listing history: NBK was wholly owned by the Government until 1994 when it sold by 32% to the public through a listing on the NSE, followed by another share sale in May 1996. One of the conditions of the KCB offer is that the NBK shareholders should approve the de-listing of NBK from the NSE.

The NBK board’s opinion on the bank’s valuation is not expected to change anything unless a competing bid materializes – and the deadline for that is July 17.

KCB’s Circular to NBK Shareholders:

  • KCB has invited NBK shareholders to accept their offer by completing and returning forms during the offer period that runs from 10 July to 30 August. If the deal succeeds, their new swapped shares will list on September 16. 
  • On the pricing, NBK traded 26,638 shares per day in the last 6 months. In the last three months, NBK share prices ranged from Kshs 4.3 to 4.5 while those of KCB ranged from Kshs 38 – 44.
  • KCB reserves the right to vary the terms of its offer up to 5 days before the closing date (which means they have a chance to improve on any competing offer).
  • If 75% of NBK shareholders accept the offer, the others will remain minority shareholders in an unlisted (NBK) company, but if over 90% accept, then KCB will move to compulsorily acquire the remaining shares of other NBK shareholders.
  • KCB notes that NBK’s loan book has a non-performing ratio of 49%. 
  • Any share amounts that convert into fractions of a share in the swap formula will be rounded upwards to a full share.
  • There is a long-stop date of Thursday 31 October, 2019, and if the deal is not concluded by then, the KCB offer will lapse, and all acceptances will be considered void.

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