Picture: ISTOCK
Picture: ISTOCK

FirstRand has tabled a R20bn offer for Aldermore, in a transaction that will enable the banking group to expand significantly into the UK in one bold move.

FirstRand will delist the UK specialist lender from the London Stock Exchange if the deal is accepted by the required majority of shareholders.

Its subsidiary FirstRand International has offered £3.13 per share, valuing the UK challenger bank at about £1.1bn. This is a 22% premium on Aldermore’s closing price on October 12, the day before fluctuations in the target company’s share price compelled Aldermore and FirstRand to inform the market they were in takeover talks.

Documents released on Monday showed that FirstRand and Aldermore had been in talks since September, when both parties signed confidentiality undertakings.

FirstRand intends to make Aldermore its fifth franchise, adding to First National Bank, WesBank, RMB and Ashburton.

It plans to unbundle MotoNovo, its UK asset financier, from WesBank and merge it with Aldermore.

The merged entity will retain the Aldermore brand.

“Once the two businesses are integrated, Aldermore’s existing funding platform, which is made up of UK retail, small and medium-sized enterprises and corporate deposits, will be utilised to fund MotoNovo origination going forward,” said FirstRand head of investor relations Sam Moss.

The Aldermore board is recommending the offer to shareholders

Moss said Aldermore did not need to stay listed to attract deposits to fund its loan extensions. “It will delist post the acquisition. The capacity we were utilising to fund MotoNovo from our South African balance sheet is then freed up for SA and rest of Africa.”

The Aldermore board is recommending the offer to shareholders. Some of its directors holding 1.12% of the shares have provided an irrevocable undertaking to support the offer together with majority shareholder AnaCap Financial Partners, a specialist private equity firm with 25.1% of the shares.

A representative of AnaCap said the company welcomed the announcement of the terms of FirstRand’s offer.

AnaCap took over the Base Commercial Mortgages start-up, which was quickly followed with an investment in Ruffler Bank. The two entities were then combined to form Aldermore as a challenger to the traditional banks in the wake of the financial crisis. It is headed by CEO Phillip Monks.

Funds advised by AnaCap invested in Aldermore’s growth, ultimately listing it on the London Stock Exchange in 2015.

Monks said on Monday his bank continued to deliver on its strategic and financial targets as Aldermore announced 12% growth to £8.4bn in net loans, together with 8% growth (to £7.2bn) in customer deposits in its third quarter interim management statement. It also completed its investment in AFS, an asset and commercial finance originator.

“Both of these factors have been reflected in the offer received from FirstRand, which the board is recommending to shareholders,” Monks said.

“With the backing of their considerable resources and wider capabilities, we will be able to accelerate the delivery of our strategy and further expand the products and services we offer our customers.”

For the offer to succeed, it first needed the acceptance of 75% of Aldermore’s shareholders. Moss said FirstRand had received expressions of interest from the directors and AnaCap, meaning the deal still had to convince about 50% of Aldermore’s shareholder base.

Investec Asset Management, one of Aldermore’s largest shareholders, said it could not say if it would accept the offer.

“In terms of pricing/valuation of the offer, there are similarities with Shawbrook Bank, another UK challenger bank which was taken over earlier this year,” said Ken Hsia, portfolio manager at Investec Asset Management in London.

“The Shawbrook deal was also recommended and received over 80% [in] acceptances.”

The Shawbrook board grudgingly recommended an £850m takeover offer from a consortium of private equity investors to remaining shareholders after the consortium won more than 75.6% of its shareholders with its offer, which Shawbrook said undervalued the company.

“The key issue in this situation is whether the UK’s exit from the EU will have a material impact on the growth profile of Aldermore,” Hsia said.

maakem@bdfm.co.za 

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