HSBC is in talks to buy up to 70 percent of South Africa's Nedbank in a potential $8-billion-plus deal that would give Europe's biggest lender a broader gateway to the fast-growing African continent. HSBC and Anglo-South African insurer Old Mutual, which owns a 52 percent stake in Nedbank, said in separate statements on Monday they were in exclusive talks.
HSBC will aim to buy up to 70 percent of South Africa's fourth-largest bank from Old Mutual and minority shareholders, worth about 49.9 billion rand ($6.8 billion) at Friday's close. Analysts at Rand Merchant Bank and Keefe, Bruyette & Woods valued the stake at up to $8.4 billion, assuming a premium of about 30 percent. HSBC has lagged rival Standard Chartered in Africa and a deal would bulk up its presence as more of its Asian customers look to do deals on the resource-rich continent.
It also faces a growing threat from South Africa's Standard Bank, which is 20 percent owned by China's Industrial and Commercial Bank of China, and is positioning itself as a full-service corridor to Africa. "This is the right thing for HSBC to do if it wants to focus on emerging markets," said Dominic Chan, an analyst at BNP Paribas in Hong Kong. "Trade between Africa and China has been growing very rapidly, and HSBC doesn't have the same presence there as Standard Chartered, which makes this buy especially crucial if it wants to continue expanding there."
Shares of Nedbank and Old Mutual surged on the news, while HSBC edged higher. South Africa's rand rose slightly in early trade on Monday, helped by the news of the potential deal. HSBC did not make the top 10 for investment banking or syndicated lending fees in sub-Saharan Africa in the first half of 2010, according to Thomson Reuters data. Standard Chartered was third in investment banking and top in syndicated lending. South Africa's head of bank regulation, Errol Kruger, told Reuters on Monday it was too early to comment on the deal: "They still have to submit all the applications they need to go through and then we'll need to apply our minds to it."
Old Mutual CEO Julian Roberts told Reuters the group aimed to unload its entire 52 percent stake in Nedbank but the exact amount it sells hinged on minority shareholders. Nedbank would remain listed in South Africa and Roberts said Old Mutual would not have gone into exclusive talks without hope of regulatory approval. Media reports had previously said Standard Chartered might bid for Nedbank. Roberts said Old Mutual had been in talks with other parties, but declined to elaborate. He also declined to discuss the potential value of the deal.
A Standard Chartered spokesman in London declined to comment. A source close to Standard Chartered said it had considered the Nedbank stake but was concerned about overpaying. Nedbank currently trades at about 1.3 times its forward 12-month book value, versus 1.6 times for bigger rival Standard Bank and 1.3 for HSBC, according to Thomson Reuters StarMine.
BNP Paribas' Chan said he estimated 1.8 to 1.9 times the book value as a reasonable price for the deal. Analysts at Keefe, Bruyette & Woods said a 30 percent premium on Friday's closing price would value Nedbank at 11.7 times 2011 forecast earnings. Standard Bank is currently trading at 10.7 times forward 12-month earnings, according to StarMine.
The sale would help Old Mutual in its strategic overhaul to slim down its complicated structure. Shares of Nedbank surged 6.5 percent to 139.90 rand in Johannesburg, while Old Mutual gained 4.1 percent in London and HSBC was up 0.8 percent. HSBC is being advised by Lazard, while Lexicon, Rothschild and Bank of America Merrill Lynch are working with Old Mutual. Credit Suisse is advising Nedbank.
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