FMB-Barclays deal good for Zim

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IN the midst of a staccato burst of opposing developments designed to scuttle the deal between FMB Bank (FMB) and Barclays Plc, a clean deal has been clinched between the two for a 57,78% stake in Barclays Zimbabwe (Barclays).

Musinde Matondo

It is quite an exciting development.

It had become worrying that the buy-out process was getting bogged down in drawn-out battles, resulting in FMB being reportedly blocked from buying the Barclays stake.

It was so discouraging to see the Barclays board failing to exercise its fiduciary duty promptly to such levels, leading to questions as to whether the board was exercising due care and diligence on issues of shareholders and stakeholder interest.

As a foundation, it is a wide expectation that when an entity is on the verge of changing hands from one owner to another, such is the best time get a new investor who has the ability to keep the ship sailing smoothly or even in ways better than in the hands of the outgoing investor, or at least at the same wavelength.

Such is the lofty expectation and bids are generally considered or rejected based on that barometer.

When FMB was selected and preliminarily singled out followed by the initiation of the due diligence exercise as was sanctioned by the Reserve Bank of Zimbabwe (RBZ), Reserve Bank of Malawi (RBM) and Barclays, it stood to reason that the buy-out process was at an advanced stage or at least it provided evidence that all preliminary considerations had been taken care of and the deal was going to be sealed anytime once the remaining negotiations prove fruitful.

Though it was not yet incumbent upon FMB to buy the stake on offer, given the intimate information a due diligence digs out and the amount of money it gobbles, it signalled a near-commitment between the two parties, therefore, any impromptu excuse to block FMB from buying out Barclays Plc’s stake was going to look unfair.

My point here is that any interest of the Barclays Zimbabwe workers should have been considered by the Barclays Plc board well before FMB was singled out, not only was it going to be a tool to expedite the process but it was going to save us the unnecessary drama.

If the FMB and Barclays Plc deal did not succeed, re-opening the bid process was going to be quite retrogressive given that Barclays Plc had indicated that the buy-out had to be completed by June.

FMB’s bid was selected by Barclays Plc amid criticism by many local equity investors and market watchers describing it as unappealing, stemming from presumed controversies surrounding its key shareholders, its size in comparison to Barclays among others.

Several investors had expressed strong interest including DBF Capital and many others who were viewed as strong bidders than Malawi’s FMB.

Having closely followed the development and with the benefit of hindsight, my view is that the bid by Barclays Zimbabwe’s top management was hoping to ride on local uprisings against the FMB’s deal, possible injunction by the local stock market to stop the deal based on FMB’s key shareholders’ integrity gaps, questions about FMB’s size in comparison with Barclays’ and a tight race to meet the June deadline.

At that time all potentially good suitors would have been kept at bay and out of the race.

This is the reason why the top management, under the Msasa Capital banner, continued to work on a fresh bid regardless of FMB’s advanced talks with Barclays Plc.

The ultimate intention was that by the time the updated Msasa Capital bid was radically pushed to the fore, the bid would look way better than the FMB one already in the pipeline, that is after a deliberate exercise of magnifying and solidifying the already perceived FMB deal drawbacks.

Then for the lack of time for new lengthy negotiations and considerations, it was not going to make sense to consider a fresh outside bidder and, resultantly, Msasa Capital’s bid was going to win the day.

The whole move was well-calculated and even the said protest among middle management and workers’ representatives to handcuff the FMB buyout was, in my view, oiled by top management just to frustrate FMB’s possible buy-out at the eleventh hour so that their Msasa Capital offer would stand out as the most lucrative one and, as was going to be an addition to its appeal, there was no need for lengthy discussions since it was a management buy-out.

It was some kind of chess in a sense because we were facing a lose-lose situation.

To put it to rest, if the top management’s bid was strong at the outset, why was it not pushed through for negotiations with Barclays Plc ahead of FMB?

So the FMB deal was just a dummy? I am not against a management buy-out, but my view is there was all the space for Msasa Capital’s bid at onset? It then causes one to reason that all the Barclays top management wanted was time to rope in big names like Old Mutual so as to spruce up and add a face-lift to their bid, and also to buy time.

It is evident that Barclays Zimbabwe’s top management wanted to maintain its grip even post-buy-out in the name of “having strong relationships with Barclays Zimbabwe important customers’’, viewing themselves as “mighty men”, who are irreplaceable and subsequently giving us a feeling that they are the mainstay upon which such an old bank hinges on.

I have to point it out that banks are special entities and have an indubitable role in building a strong economy.

What Barclays needed was not only a buy-out of Barclays Plc’s stake, but was another good partner to help keep value in the midst of economic turmoil and beyond, a partner to help the entity stand the cut-throat competition in the banking sector, foster depositors’ confidence, and so on.

A whole lot of considerations including qualitative ones were in consideration.

Here are some of my reasons why the Msasa Capital deal was not going to be the best for Barclays:

As was mentioned, Old Mutual was within the Msasa Capital bid. Even before mentioning any consideration by the Competitions Commission, I do not think it was going to be healthy for three of largest local banks to be majority controlled by one entity, posing counterpart risk and making the banks recipients of any possible shake-ups or negative spill-offs from within Old Mutual. Such exposure was unnecessary;

I have nothing against private equity investments which are basically injections of capital and subsequent deployment of a strong management team to manage. However, in light of the banking space, my view is such investments are not very suitable coming from lack of possible technological cross-pollinations, absence of mother bank and intra-group networking resulting in much-needed “de-risking”, lack of possible staff mobility within the group, intra-group lower rate loans, intra-group expert advice, sharing of innovations and innovative developments which keep Barclays abreast with global banking product trends, etc. Being part of an expansive family counts, especially for depositor’s confidence and innovation;

Msasa Capital has no known portfolio within the financial service space; this was going to limit synergy benefits for the bank within the portfolio;
It made more sense to replace Barclays Plc with another international or at least regional conglomerate. At the very least, resistance to change is minimised; and

Barclays is due for some changes in management, thereby limiting the key-man risk, especially given our nation’s debilitating background of banks failing in the hands of the so-called “mighty men”.

I think Zimbabwe has come full circle as far as disasters within the banking space are concerned.

I am happy about this deal with the strong faith that our thriving Barclays will remain sound, both in the immediate and long-term.

One thought on “FMB-Barclays deal good for Zim”

  1. Sagitarr says:

    Thanks for the balanced analysis. The coming in of a new investor is not always welcome especially when the existing management has got something to hide – like poor. low or no qualifications or non-existent performance evaluation systems etc
    Greed would have taken a huge bite as expressed elsewhere by the workers’ union that last year NSSA was against worker buy-out as it did not have money then, where has the money now come from?…now because its management? Come on, this country may be full of cowards but we’re not all idiots.

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