M&A : Will Nigerian Bank deal founder?

Nigeria's Vanguard newspaper is reporting this morning that shareholders in Spring Bank are looking into the prospect of stalling the bid, and perhaps taking legal action over the takeover that was announced two weeks ago.

The story goes that "some aggrieved shareholders of Spring Bank Plc, who claim that Bank PHB did not meet the statutory requirements to make the so-called "mandatory bid" advertised on Monday, 1 December, 2008 where it sought to acquire majority shareholding in the Spring Bank."

And so they went to Court and secured an injunction preventing the deal from going ahead.

But the injunction is temporary pending a full hearing, The Chief Officers' Network understands.

Even so, the range of bodies subject to it is extensive, according to The Vanguard: The "Central Bank of Nigeria (CBN), Securities and Exchange Commission (SEC), Nigeria Stock Exchange (NSE), First Registrars Limited and the Interim Management Board (IMB), whose tenure is expected to come to a close on 31 December, 2008."

The situation is complicated by the fact that, after the purchase was announced, an application to CBN approved a new interim board for Spring Bank. When the current appointments end in two days, the Bank will have to take the newly approved board - or it will have no board. But it will not be easy: for the interim board is made up entirely of PHB seniors.

Clearly that cannot be allowed to happen and so frantic efforts are being made to find a compromise pending the return of the matter to the Court.

However, an injunction is merely an order not to do something: it is not a resolution of the underlying issues. Shareholders are stopping short of alleging some sort of fraud - but they are alleging collusion between PHB and CBN - and alleging that at least one front company was used to build up shares in Spring so as to disguise the accumulation of position by PHB.

The Vanguard reports that the main activists are those representing the former shareholders in two "legacy" banks - i.e. banks that were absorbed during the frantic amalgamation period in recent years. CBN used brute force in the form of ever-increasing capital requirements to push banks into combining. The result was a reduction from several hundred banks to around two dozen. A few banks failed to find anyone willing to take them on and they were put into administration, although each of them paid out depositors in full.

The two "legacy banks" concerned are said by The Vanguard to be Omega and Fountain Trust. They say that the takeover of Spring cannot proceed because the Spring has not yet finalised all adjustments from those absorbtions.

There is no likelihood of the issues being finally resolved before the end of the year. It is entirely within CBN's discretion as to who it appoints to continue after the 31 December and The Chief Officers' Network has been told that it is extremely unlikely, absent clear evidence of fraud, that the Court will hinder CBN's regulatory function.