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SAGIT – Of mergers and break-ups


By Epifania Gorowa

TILL mismanagement do us part” is the matrimonial vow that seems to underlie the mergers we have witnessed in our financial sector, especially over the past two

years.


Mergers can best be described as a form of corporate restructuring involving two or more companies to become one.


Effectively, the direction of the company changes, especially its asset and financial structure.


The obvious objectives of merging are to initiate growth, promote diversification, build synergies and more often than not, rescue a firm in a weaker position.


These marriages, while noble to all intents and purposes, have always been terminated in their infancy owing to misrepresentation of the firm’s true financial status by one of the parties or entrenched mismanagement practices.


The only good thing about these financial mergers is that most, if not all of them, were “friendly mergers” as opposed to “hostile” mergers, whereby one party is forced to give in, albeit unwillingly, due to circumstances beyond their control.


Still in the pipeline is the merger between Intermarket Holdings Ltd (IHL), whose banking divisions — IDH, IBC and IBS — were placed under curatorship in 2004 and Finhold, where the debt of the former is likely to be changed into equity.


According to published notices, the negotiations have reached an advanced stage.


Considering that this has taken a bit long, there might be anxiety among stakeholders, especially those allied to IHL, compounded by the issue that the Zimbabwe Allied Banking Group (ZABG) is set to commence operations. That said, predictions are that should a merger be effected, a steadfast marriage is likely.


Tongues are also wagging concerning the merger between the Export Processing Zones Authority of Zimbabwe (EPZA) and the Zimbabwe Investment Centre (Zic). The two entities were enacted by the government, with the former solely for the promotion of zone development, enhancement of export-oriented activities and the latter for facilitating investment by both local and foreign players. The merger could, however, take long to be completed.


What is also interesting to note is the once muted de-merger at Zimbabwe Sugar Refineries (ZSR) which is the parent company of a group primarily involved in refining, packaging, marketing of sugar plus the manufacture of specifically sugar-based products.


The group is also into retail, transport, printing business and tyre re-treading.

The separate listing of Redstar is being advocated but has currently been put on hold. Redstar contributes a huge chunk to the group’s turnover and has emerged as one of Zimbabwe’s leading wholesalers having acquired Advance and Bhadella Wholesalers in 2003.


This division has been able to stand firm, contributing immensely to group profits even during the period government imposed price controls on certain commodities during 2003.


Overally, ZSR’s share price has joined the bull-run on the stock market, registering an increase from $220 per share at the start of the year to approximately $480. (This is related to the current bull-run as opposed to the de-merger issue.)


First Banking Corporation and Southern African Reinsurance Ltd merged, bringing about FBC Holdings which still stands sturdy, whilst that of Century and CFX failed to see the dawn of 2005 when it collapsed towards the end of December 2004.


The era of mergers is not yet over, more are to be witnessed as the financial sector still attempts to fully stabilise.


On another note, Econet Wireless Holdings Ltd (EWHL) released results for the six months ended December 31 2004.


Having experienced a difficult operating environment, the group managed a revenue increment of 21% from 2003’s $233 billion to $282 billion in inflation adjusted terms, said to be a result of subscriber growth and increased airtime usage.


However, operating costs rose by 70% and basic earnings per share decreased by 25% from 4 838 cents to 3 643 cents.


It is good to see that they have expended $80 billion on a network development project with the intention of improving their network performance.


It is hoped that the company will witness less complaints about the congested network from users in due course and resuscitate the good reputation it once had.


* Any opinions expressed reflect the current judgement of the author(s), and do not necessarily reflect the opinion of Sagit Financial Holdings or any of its subsidiaries and affiliates.

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