Deal or No Deal

Mergers and acquisitions (M&A) are not trivial events. Synergy evaluation, regulatory hurdles, valuation disputes, internal and external claimsholders' buy-in, advisory fees, integration factors, cultural issues, competitor objections, unsolicited offers and ego management are just some of the mid-air sharp knives that task the juggling skills of those driving a transaction. Little wonder that veteran investment bankers love to decorate their offices with commemorative Lucite tombstones (‘deal toys') of consummated deals as testimonies of battlefield scars. Nurturing a deal from the first date until the dotted lines are signed demands superior matchmaking skills.

Staying with the courtship analogy, it is not uncommon for these transactions to traverse all but the shortest distance between two points.

Off and on talks

The on-off First Bank-Ecobank merger parley may have fallen into this category. The deal is a strong contender for the world record of the most protracted transaction negotiation, even after controlling for the peculiar delicateness of a multi-jurisdictional combination. Speaking shortly after the announcement in April that the banks were resuming talks, Boniface Okezie, national president of the Progressive Shareholders Association of Nigeria (PSAN) commented that "the two banks have been ‘romancing' and I do not know what stage they are now." Undoubtedly, intermittent foreplay with no end in sight is the worst kind of anticlimax.

First Bank is arguably Nigeria's most resilient financial brand. Its perennial presence at the top of the charts makes it a leading choice for foreign institutions looking for a local partner with scale. But there are weak links in that gleaming chain. In comparison with its nimbler peers, like Access Bank, GTBank and UBA, it lacks a transnational network on the continent.

Ecobank, on the other hand, is the leading pan-African bank. Enrooted across anglo-, franco-, and luso-phone Africa, the bank proudly boasts that while other banks count in branches, it counts in countries. Notwithstanding, there are untarred stretches on its glorious highway. In spite of its best efforts, it has struggled to grow its franchise in Africa's most populous economy.

For both banks, a merger has unambiguous preliminary merit. First Bank would benefit from Ecobank's continental scope and Ecobank would tap from First Bank's strength. Yet, four years after the merger was first mooted in 2005, both institutions are still sending confusing signals on its nature and value.

A careful reading of statements by senior bankers in both institutions reveals fundamental differences of opinion on the strategy of the combinant entity.

During a 2007 interview, Arnold Ekpe, CEO, Ecobank Transnational Incorporated, explained that "our objective is Middle Africa, that is, from Kenya going on to Senegal to Mozambique across to Namibia, Angola and all the way through. We are looking at about 34 countries. We are in 19 now, so there is still a lot of work to do."

Today, Ecobank is firmly established in 28 African countries. A continent-wide footprint is not just central to its strategy but its raison d'être. These are the family heirlooms it brings to the merger.

Whatever reservations or disagreements First Bank might have about Ecobank's demands on the cash tender and/or exchange ratio, board composition, management nomenclature and organizational structure, one would not expect them to question the carat of Ecobank's continental crown jewels. That was supposed to be the main attraction.

But that is exactly what First Bank has done.

At an analyst conference call held on November 4, 2009 to review its first half-year results, Onche Ugbabe, First Bank's Chief Strategy Officer discussing its international strategy said that: "We continue to believe that Nigeria is the most attractive market in sub-Saharan Africa. . . You are aware that we have been in discussions about a potential merger with an international bank, and we have also looked independently at profit pools in different countries and growth rates, and we have a very strong perspective on the six or seven other sub-Saharan African nations we believe we should be in. We do not think that there is much value in being in every single nation. The banking assets and GDP are disproportionately concentrated in a few nations that matter and those are the ones that we will focus on."

There is no better example of deal-secticide fumigation. This was not an inadvertent slip-of-tongue by the McKinsey alumnus but a well-thought out stringent standard for assessing the fit of the Ecobank merger and the value its 28-nation continental presence would deliver to First Bank shareholders. Little, it appears. Conversely, for Ecobank, retrenching on its pan-African ambitions will be asking the impossible and nothing less than a proposition for suicide.

It is a bad omen that four years later, First Bank and Ecobank are yet to reach common ground on their proposed common future. After years of rehearsals, it should not be such a hard thing for the choristers to sing from the same hymnbook. In the time being, the deal limps along on a wing and a prayer.

The writer is the managing director of a full service investor relations firm based in Lagos.