The sale of Barclays’ African businesses, comprising Botswana, Ghana, Kenya, Tanzania, Uganda, Zambia and Zimbabwe, to Absa was supposed to be a key pillar behind the UK bank’s investment in 2005 in the South African lender. But in late February the deal fell through as neither side could agree on the valuation. "There’s a big gap between the price we’re willing to pay and the price Barclays is willing to accept," said Steve Booysen, Absa’s chief executive, during a televised presentation, without elaborating on the differences in valuation.
Naturally, Barclays’ officials are putting a positive spin on the failed transaction and talks are continuing to try to combine operations in Tanzania. "The profitability in the sub-Sahara and African businesses has grown very significantly over the course of the last two years since Frits [Seegers, chief executive of global retail and commercial banking] took control," said John Varley, Barclays’ chief executive, during a presentation in February.
"So as an example, if I look at the non-Absa sub-Sahara and African businesses during 2007, [we saw] profit growth [of] 47% versus [the previous] year. As a result two things [are] happening. One, emerging markets business is becoming more valuable in the estimate of stock markets around the world. And two, the absolute growth in profitability. For reasons I entirely understand, the Absa board takes the view that it can’t make the returns work if it were, for example, to put up cash or issue paper to acquire these businesses," he added.
Varley’s explanation raises the question: if the Africa business is so successful, why was Barclays seeking to sell it to Absa in the first place? "We were combining the business with Absa," is the Barclays response given by a bank spokesman, but now "the valuation of the business has changed".
Despite the bank emphasizing its renewed commitment to its sub-Saharan business – to be run out of the headquarters for its emerging markets operations in Dubai – a sale to another firm cannot be ruled out. Barclays declines to comment.
Another issue is what the failed sale will mean for Barclays’ relationship with Absa. One Absa banker in Johannesburg admits: "It doesn’t paint a good picture."
Another banker, who used to work for Barclays in Johannesburg, says that relations between the two firms were less than smooth even before this latest disagreement. He highlights cultural barriers in particular. "Absa is a very Afrikaaner-oriented bank," he says contrasting its culture with Barclays’ Englishness. In addition, he questions how much influence Barclays has over Absa. The UK bank has no executive directors on the Absa board despite its majority shareholding, although it does have three non-executive directors.
Absa’s profits before tax rose by 23% in rand terms in 2007, although the sterling profit fell by £9 million to £689 million after absorbing a 12% decline in the average value of the rand. "Absa has grown very strongly [since 2005]," says the Barclays spokesman. "You can see where Barclays’ expertise has helped."