•Access or Zenith to become Nigeria’s most valuable bank should takeover rumour be true
•Union Bank to benefit more in the transaction
The news of the intended acquisition of Union Bank by either Access Bank or Zenith Bank trended in the market last week. The three banks in the news continue to attract attention on the floor of the Nigerian Stock Exchange, with the bride (Union Bank) and the two potential grooms (Access Bank and Zenith Bank) emerging on the weekly gainers list as they gained 4.63%, 3.68% and 6.76% respectively.
Triggered by the news of the rumored acquisition, the share price of Union Bank last week went as far as N5.90 on Tuesday but eventually closed the week at N5.65. It is trading 19.29% away from its 52 weeks high of N7.
As at 31 December, 2020 Union Bank in its Audited Financial Statement declared Total Assets of N2.19 trillion and Total Liabilities of N1.93 trillion. This brought Total Equity (shareholders’ fund) to N264.318 billion. With Shares Outstanding of 29.12 billion, the Book Value of Union Bank stands at N9.08.
With the Book Value of N9.08, relative to its current share price of N5.65 implies the stock is undervalued; hence it has uptrend potential.
Book value is the net value of a firm’s assets found on its balance sheet, and it is roughly equal to the total amount all shareholders would get if they liquidated the company. It is calculated by dividing Total Equity by Outstanding number of shares of a company.
In case the rumored takeover of Union Bank is true, the probable purchase price of the Bank is its Book Value. It could also be purchased at a discounted price or even at a premium.
The market seems to be behaving like Zenith Bank will most likely grab the Union Bank deal as Zenith Bank’s share price grew by 6.76% week on week.
What is moving the share price of Zenith Bank is not just the earnings but also the probability that they might be able to get into Union Bank. If Zenith is able to get into Union Bank, they will become the most valuable and the best Bank in Nigeria; because they will be adding the strength of Union Bank to their existing strength.
What we are getting to hear is that, may be the majority shareholders in Zenith are the ones that are divesting. If Zenith Bank should pick that up, Zenith becomes the majority shareholder in Union Bank. Very simple, they will just convert the shares of those existing shareholders to Zenith. If it is Access Bank, they will just covert the shares of those existing shareholders to Access Bank.
One thing that is sure is that, the majority shareholder in Union Bank is divesting. So that makes Union Bank the bride. The two competitors, that is, the grooms are Access Bank and Zenith Bank.
We do not know which of these institutions will eventually win. If you have gone to invest in Access, and Zenith got it; what will happen? Or if you invest in Zenith, then Access got it, what will happen?
What you need to do is to do a valuation, look at the shareholders’ funds of Union Bank and compare with its current price. The variance between the Book Value and the current price is most probably your profit.
Union Bank is about the second oldest institution after First Bank. So they have assets. Of course in the last couple of years, they have not been able to deploy of these to show strength. But you can be rest assured, if Access Bank or Zenith comes into Union Bank, it’s not going to be a joke.
Jim Ovia is a silent ‘Lion’. He doesn’t talk, yet very strong. That much we can see in the expansion of the bank in the last decade.
Access Bank cannot also be underrated. With Access Bank, I have come to believe in them that nothing is impossible. Recall that Access Bank ones almost took over Union Bank long before Mallam Sanusi Lamido, former CBN Governor sent the Board of the Bank packing. If not for the strength of Godwin Obor, the then Managing Director of the Bank, Union Bank would have long become a part of Access Bank. Taking a cue from their takeover of Intercontinental Bank, Diamond, Kenya Bank, Botswana to South Africa, you dare not stand in the way of a moving Access Bank.
Whoever gets Union Bank, either Access or Zenith would become Nigeria’s most valuable bank. We wait to see how this intrigues play out.
The institution that will benefit more than the two is actually Union Bank. If you have not taken position; go and look at the book value of Union Bank; and look at the variance; if it is still profitable for you, it is better.