It has been seven years coming but Barclays has finally struck a deal to merge its Africa operations with Absa, the South African bank it bought in 2005. Under the terms of the deal, Absa acquires Barclays Africa for shares worth R18.33 billion ($2.2 billion), while Barclays’ stake in Absa rises from 55.5% to 62.3%.
The combined business will be renamed Barclays Africa Group, except for Absa’s South African retail business. It will be listed on the Johannesburg Stock Exchange and includes Barclays’ operations in Botswana, Ghana, Kenya, Mauritius, Seychelles, Tanzania, Uganda and Zambia, as well as Barclays Africa’s Johannesburg regional office.
The combined group will cover 14.4 million customers through 1,300 outlets, employing 43,000 people in 10 countries, says Barclays. The deal excludes Barclays’ Egypt and Zimbabwe operations.
Market response to the deal was broadly positive. Analysts say it ends a messy arrangement previously in place and streamlines Barclays’ ambitions to be "one bank in Africa", as the bank describes it.
The deal should also allow easier expansion of pan-African corporate banking and bancassurance, in particular. For Absa, it diversifies earnings and provides better growth opportunities than are available in its existing businesses in South Africa.
Maria Ramos, group chief executive of Absa and chief executive of Africa for Barclays
"The Barclays [Africa] businesses are generating about 22% ROE," says Johann Scholtz, head of research at Afrifocus Securities in Cape Town. "Absa is on about 13%, and through the cycle is probably between 18% and 20%."
The deal has been on the cards since Barclays acquired its initial stake in Absa. It happened now because, since 2005, "the banking landscape in Africa has matured significantly, as has the relationship between Absa and Barclays Africa," explains Maria Ramos, group chief executive of Absa and chief executive of Africa for Barclays.
Ramos says the operational alignment between the two businesses announced in 2010 "alleviated perceived combination risks". She says: "The proposed structure allows us to leverage the significant potential of our Africa businesses and follows on from the steps that we took last year to combine the businesses from an operational point of view."
Ramos says she believes the key integration risks have already been dealt with, and that the new structure ensures a common strategy between the two owners for growth and expansion.
The deal excludes Egypt and Zimbabwe, because, says Ramos: "The macroeconomic and political situations facing Zimbabwe and Egypt make it difficult to value those assets."