MEIKLES Africa Limited has until Tuesday next week to convince its key minority shareholder, Old Mutual, to support its proposed merger with Kingdom Fina
ncial Holdings (Kingdom).
It’s going to be a busy five days for the Meikles family which despite its major stake in Meikles Africa does not have the power to vote in the deal because they also own a significant shareholding in Kingdom, the company they want to takeover.
Meikles need the deal to comply with the Indigenisation and Economic Empowerment Bill which sailed through parliament two month ago. The Bill is yet to be signed into law by the President Robert Mugabe.
Kingdom wants to grow their business and use the resultant financial muscle to expand the company into other African markets.
Meikles will have its Extraordinary General Meeting next Tuesday to consider the proposed merger.
The outcome of the deal however largely depends on Old Mutual who have questioned the valuation of Kingdom in the deal. Old Mutual owns about 13% of Meikles through Old Mutual Life Assurance (10,85%) and Old Mutual Zimbabwe (2,25%).
It is not that Old Mutual can kill the deal but the influence that its voting will have on other minority shareholders threatens the deal. Already other minorities seem to be equally worried about the deal.
Comarton Consultants which administers pensions and employment benefits has been having meetings with their pension funds clients to decide on how they would vote. There are about four pension fund on Meikles’ top 20 shareholder’s list.
The managing director of Comarton, Davie Buyanga, recently wrote a letter to the pension fund clients requesting their view on the deal. He wanted to know how the pension funds were going to vote in the deal.
An evaluation carried out using market capitalisation method has found that Meikles is twice the size of Kingdom. This is the valuation Kingdom have insisted to be correct. Old Mutual however argues that more valuation methods should have been used to reach the price.
Old Mutual used the net asset value, historic earnings and market adjustment to determine the value of both companies. These three methods have found that Meikles is 12 times bigger than Kingdom on the bottom end and 22 times larger on the top end.
Kingdom’s share price on the stock market grew 155 456% for the period between December 31, 2006 and July 31, this year when the deal was announced. Meikles’ share price grew by 7 067% during the same period. Old Mutual is arguing that there is no correlation between Kingdom’s growth in capitalisation and profits from the same period. Using the market capitalisation levels of Wednesday it means that Kingdom is the third largest listed bank after Barclays and the Commercial Bank of Zimbabwe.
“We are not blocking the deal. No. We support the deal but we have merely questioned the valuations. There is nothing wrong with asking questions,” said Old Mutual chief executive Luke Ngwerume.
“We are saying other methods should have been used to come up with the value. We have said clearly that given that these are totally different companies, we could be wrong.”
Ngwerume said Old Mutual was keen on the deal and its doors were still open for discussions.
However, with the little time left it seems the parties would have to move faster to reach a compromise. It is not clear whether talks have already started but sources close to the deal told businessdigest yesterday that Meikles was still lobbying for support from other shareholders to back the deal.
The pressure is on Meikles. Much is at stake for the company. If the deal collapses Meikles would have lost a chance to go into a merger with its desired empowerment partners, Nigel Chanakira and Strive Masiyiwa.
When this happen Meikles runs a risk of being forced to marry a government imposed empowerment partner.
Old Mutual on the other hand is hesitant on the valuation because they are custodians of policy holders’ funds.