HSBC is in discussions with Old Mutual to acquire a controlling interest in Nedbank Group, a transaction that could have a value in excess of $6.5 billion.
In March, Old Mutual articulated a strategy to rationalise its portfolio and enhance focus on its core insurance business. Its stake in Nedbank, South Africa’s fourth-largest bank by market value, is part of the non-core portfolio. Old Mutual originated in South Africa in 1845, and is listed on both the London Stock Exchange and the Johannesburg Stock Exchange. It is being advised on the sale by Bank of America Merrill Lynch, Lexicon Partners and Rothschild.
The process adopted is a hybrid between a negotiated sale and an auction, said a source close to the transaction. Because price discovery was critical, other parties were approached and specifically Standard Chartered was also in the fray. However, it never went as far as a broad-based auction because regulatory approval is critical to the deal progressing and therefore only parties who would have been acceptable to South African regulators were considered. Consequently, regulatory approval is not expected to derail the transaction.
The price at which the deal will be transacted has not yet been disclosed because final due diligence has only just begun, added sources. However, even at a zero premium to the current market price, the deal would be valued at around $6.5 billion.
A takeover of Nedbank would provide a platform for HSBC to strengthen its presence in South Africa and expand across the African continent. HSBC has said in the past that expanding in Africa is a strategic priority for the bank. Asia-Africa links are strengthening with deals such as Industrial and Commercial Bank of China's (ICBC) acquisition of a stake in Standard Bank and Bharti's purchase of Zain Telecom making banks keen to follow their customers to Africa. HSBC is being advised by Lazard, while Nedbank is taking advice from Credit Suisse.
“The potential sale of Nedbank to HSBC highlights how the M&A landscape has changed after the credit crisis,” said a source. “When Absa Bank [the largest consumer bank in South Africa] was sold to Barclays in 2005 the likely buyers were mostly Western, however Nedbank was shopped to two banks with an Asian focus.”
The deal is still subject to a number of critical regulatory approvals, including approval from the South African Reserve Bank for the remittance outside South Africa of a proportion of the proceeds to be received by Old Mutual; approval by the Registrar of Banks and the Minister of Finance; as well as shareholder approvals. However, the parties involved would not have announced the deal were they not confident that approvals would be forthcoming, added the source.
For HSBC the deal falls in its sweet spot, said a specialist. Nedbank is a strong retail and commercial bank that operates in a highly regulated banking market and since HSBC’s own operations in South Africa are not of the scale of Nedbank, the acquisition will kick-start its expansion in the region.
