Business Case
for
Sterling Bank Plc (SBP) Acquisition of Equitorial Trust Bank (ETB)
September 2011
2
Agenda
Deal Rationale
3
Timeline
4
5
Transaction Dynamics
Overview
2
1 Deal Highlights
Summary
7
6
Financial Review and Forecasts
3
Deal Highlights
AMCON will inject Financial Accommodation Amount
(FAA) of N64.45 billion to bring the Net Asset Value
(NAV) of ETB to zero as a precondition for the
acquisition. In exchange AMCON will receive
785,193,222 units of ETB shares subsequent to ETB’s
capital re-organization
Existing ETB shareholders will re-capitalize the institution
up to N8.5 billion from zero
Sterling Bank will issue 3,140,772,888 in exchange for
the assumption of all assets and liabilities of ETB with
impact as follows on its ownership:
• AMCON: 1,570,386,444 units (10%) of total Sterling
shares in issue
• ETB legacy shareholders: 1,570,386,444 units (10%)
of total Sterling shares in issue
Legacy shareholders of Sterling Bank will retain existing
holding, which total 80% of the enlarged Sterling Bank
Total Sterling Bank shares in issue will increase by 25%
to 15,703,864,432 ordinary shares of 50 kobo each.
Recapitalization funding
to be provided by
legacy ETB shareholders
N8,500,000,000
Sterling Bank Plc shares
to be issued to legacy
ETB shareholders
Per share value of ETB
shareholder holding
3,140,772,888
N2.71
Key Facts
Valuation
Market
Value
10 Oct, 2011
June 30
Pre deal
Book value
Sterling Bank
Valuation
1.43
2.29
Premium/
Discount
Per share
90%
18%
4
Agenda
Deal Rationale
3
Timeline
4
5
Transaction Dynamics
Overview
2
1 Deal Facts
Financial Review and Forecasts
6
7
Summary
5
Overview of Sterling Bank
Parent Company
Banking License
Accounting
Credit Rating
Focus Segment
Employee
Channels
Sterling Bank Plc is a full service commercial bank, which
emerged from the successful merger of five banks in 2005
National Commercial Banking License
Local GAAP; IFRS with effect from 2011
Short Term A3; Long term BBB (Stable Outlook) - GCR
Mid-tier Corporates and Institutional focus
1,600 professional employees
96 business offices; 87 ATMs
6
Agenda
Deal Rationale
3
Timeline
4
5
Transaction Dynamics
Overview
2
1 Deal Facts
Financial Review and Forecasts
6
Summary
7
7
Transaction Dynamics
Execution of Transaction
Implementation
Agreement (TIA)
Capital re-organization of
ETB
Injection of the Financial
Accommodation Amount by
AMCON to facilitate the
acquisition
Recapitalization of ETB up to
N8.5b by existing
shareholders
SBP absorbs the newly
capitalized ETB and issues its
shares in favour of AMCON
and ETB existing
shareholders
Pre-acquisition
Acquisition &
Capitalization
Restructuring
& Integration
Integration implementation
planning
Divestment from
subsidiaries and associate
business not within the
scope of the new banking
license
Integration of ETB into SBP
Repositioning of the
merged SBP for effective
market penetration
8
Pro Forma Capital Position
14%
(97%)
14%
Pre-acquisition
AMCON
Intervention
ETB
Recapitalization
Sterling Bank
Post-deal CAR
15.3%
97%
0%
Current Capital
Adequacy Ratio of
the Combining
Banks
0%
AMCON FAA brings
ETB’s net asset value
(NAV) to zero
ETB recapitalized by
legacy shareholders
Steady state capital
adequacy ratio of the
resultant Combined
Entity, Sterling Bank
15.0%
15.0%
15.3%
15.3%
ETB
Sterling
9
Agenda
Deal Rationale
3
Timeline
4
5
Transaction Dynamics
Overview
2
1 Deal Facts
Financial Review and Forecasts
6
7
Summary
10
Market Share by Branches
711
611
570
491
349
333
315
249
223
215
206
201
189
186
184
181
154
120
96
93
26
13
UBA
First
Ecobank + Oceanic
Access + Intercontinental
Union
FCMB + Finbank
Zenith
Skye
Unity
Diamond
Mainstreet
Keystone
Sterling + ETB
GTBank
Fidelity
StanbicIBTC
Wema
Enterprise
Sterling
ETB
StanChart
Citibank
#19
#13
11
Market Share by Deposits
FY 2010, %
12.7%
11.5%
11.1%
10.2%
8.7%
6.6%
5.6%
4.7%
4.1%
3.6%
3.4%
2.9%
2.9%
2.5%
1.9%
1.8%
1.8%
1.7%
1.6%
1.3%
1.2%
1.1%
First
Zenith
UBA
Access+Intercontinent
al
Ecobank+Oceanic
GTBank
Union
FCMB+Finbank
Skye
Diamond
Keystone
Sterling+ETB
Fidelity
Mainstreet
Unity
Citibank
Sterling
Enterprise
StanbicIBTC
StanChart
ETB
Wema
#17
#12
12
Market Share by Assets
FY 2010, %
13.9%
11.5%
9.8%
9.2%
8.7%
7.0%
6.1%
4.4%
4.3%
3.6%
2.9%
2.7%
2.5%
2.3%
1.8%
1.7%
1.6%
1.6%
1.4%
1.3%
1.2%
0.8%
First
Zenith
UBA
Access+Intercontinenta
l
Ecobank+Oceanic
GTB
Union
FCMB+Finbank
Skye
Diamond Bank
Fidelity
Keystone
Sterling+ETB
StanbicIBTC
Unity
Sterling
Mainstreet
Citibank
Standard Chart
Enterprise
Wema
ETB
#16
#13
13
Global Stakeholder Benefits
Customers Employees Shareholders
Enhanced institutional capacity
to meet clients business
requirements
Array of financial products and
services to a growing and
discerning customer base
The combined bank will initially
have a network of 189 branches
present in majority of the states.
The footprint will bring the Bank
within reach of its enlarged
customer base, engendering
banking convenience
Tap cost and revenue benefits
from economies of scale and
operational synergies to
achieve optimization
Instant leap into Tier 2 banks’
category with greater stock
market liquidity and lower risk
perception
Increased financial strength
and capital position to support
future growth
Value creation through
revenue and cost synergies,
Leadership by established
management team and
knowledge sharing of best
practices across both
institutions
Greater and promising career
opportunities within a fast
growing and more diversified
organization
Improved training and career
development capacity
Greater ability to attract and
retain valuable human capital
and senior talent
Excellent personal and
professional development
opportunities
Unmatched value, superlative
service
Sustainable value creation
14
Agenda
Deal Rationale
3
Timeline
4
5
Transaction Dynamics
Overview
2
1 Deal Facts
Financial Review and Forecasts
6
Summary
7
15
Event
Date
Last date for lodging proxy forms for Court-Ordered Meetings
Sep 26, 2011
ETB Court-Ordered Meeting
Sep 28, 2011
SBP Court-Ordered Meeting
Sep 28, 2011
File resolutions obtained at the Court-Ordered Meeting and obtain CAC certified
documents
Sep 29, 2011
Apply for CBN/SEC final approval of the Scheme
Sep 29, 2011
Receive CBN/SEC final approval of the Scheme
Sep 29, 2011
Obtain Court sanction of the Scheme (Effective Date)
Sep 30, 2011
Obtain CTC of Court sanction of the Scheme
Sep 30, 2011
Obtain CTC of Court sanction with CAC
Sep 30, 2011
File CTC of Court sanction with CBN/SEC and NSE and apply for registration of the Scheme
shares
Sep 30, 2011
File post merger documentation with CBN/SEC
Sep 30, 2011
Publish copy of Court sanction in at least two national newspapers
Oct 3, 2011
Submit copy of Court sanction for publication in the Gazette
Oct 3, 2011
Obtain SEC approval for the registration of the Scheme Shares
Oct 5, 2011
File Court-sanction / newspaper advert with the NSE
Oct 5, 2011
Dispatch Sterling Bank share certificates to ETB existing shareholders/ credit CSCS
accounts of ETB existing shareholders
Oct 7, 2011
Listing of Scheme shares on the NSE
Oct 7, 2011
Key Transaction Timeline
16
Agenda
Deal Rationale
3
Timeline
4
5
Transaction Dynamics
Overview
2
1 Deal Facts
Financial Review and Forecasts
6
7
Summary
17
Consolidated Balance Sheet – 1H 2011
Indicators (N in Millions)
Sterling Bank
ETB
Consolidated
ASSETS
Cash & Short Term Investments
14,800
27,209
42,009
Due from other Banks
16,096
19,700
35,796
Loans & Advances
124,296
36,690
160,986
Investment Securities
108,459
36,109
144,568
Other Assets
27,476
4,093
31,569
Fixed Assets
4,864
4,940
9,804
TOTAL ASSETS
295,992
128,751
424,732
LIABILITIES
Customers' deposits
209,056
140,346
349,402
Borrowings
26,915
26,915
Other Liabilities
23,797
53,656
77,453
TOTAL LIABILITIES
259,768
194,002
453,770
EQUITY
Tier II Capital
7,500
7,500
Share Capital
6,282
6,500
12,782
Reserves
22,442
(70,950)
15,942
Capital & Reserves
36,224
(64,450)
Contingencies
78,232
3,701
81,933
Balance sheet size
374,224
132,442
506,665
Notes
The Consolidated
Capital & Reserves
position of N44.72bn
includes:
N64.45 Financial
Accommodation
Amount (FAA) to
bring ETB’s net asset
value (NAV) to zero
Further injection of
N8.5bn by legacy
shareholders of ETB.
44,724
18
Financial Forecasts: Balance Sheet
(N in Millions)
2011E
2012E
2013E
ASSETS
Cash in hand and balances with CBN
41,113
37,617
40,023
Treasury bills
17,000
15,554
16,549
Due from other banks
53,778
49,204
52,352
Loans and advances to customers
157,327
228,117
295,878
Advances under finance lease
3,812
16,981
22,067
Investment securities
233,903
285,375
341,456
Investment in associates
106
-
-
Investment properties
9,115
4,557
-
Other assets
31,100
34,788
39,030
Deferred tax assets
4,257
1,757
7
Property and equipment
10,146
10,526
10,932
TOTAL ASSETS
561,657
684,478
818,294
LIABILITIES
Customers' deposits
419,283
503,140
603,768
Due to other banks
2,868
2,624
2,792
Current income tax payable
(111)
415
2,853
Other liabilities
61,733
73,207
87,284
Defined contribution obligations
3,743
3,743
3,743
Deferred tax liabilities
12
12
12
Long-term borrowing
26,915
26,915
26,915
TOTAL LIABILITIES
514,443
610,055
727,367
NET ASSETS
47,214
74,422
90,928
19
Financial Forecasts: Capital & Reserves
(N in Millions)
2011E
2012E
2013E
DEBT CAPITAL
13% subordinated unsecured Non-convertible stock
7,500
7,500
7,500
CAPITAL AND RESERVES
Share capital
7,852
10,346
10,346
Share premium
19,244
31,749
31,749
Share reserve
5,276
5,276
5,276
Retained earnings
1,836
9,466
19,782
Other reserves
5,506
10,086
16,274
Capital and Reserves
47,214
74,423
90,927
20
Financial Forecasts: Profit & Loss
(N in Millions)
2011E
2012E
2013E
GROSS EARNINGS
45,703
89,682
115,209
Interest and similar income
30,849
60,146
75,860
Interest and similar expenses
(14,029)
(22,978)
(26,129)
Net interest margin
16,820
37,168
49,731
Fee and commission income
8,501
18,784
25,134
Fee and commission expenses
-
-
-
Net fee and commission income
8,501
18,784
25,134
Income from investments
1,674
1,065
1,254
Other income
4,680
9,687
12,961
Operating income
31,674
66,704
89,080
Operating expenses
(25,123)
(46,972)
(61,694)
Loan loss expenses
(138)
(2,649)
(2,553)
Diminution in value of other risk assets
(804)
(1,353)
(1,556)
PROFIT/(LOSS) ON ORDINARY ACTIVITIES
5,610
15,731
23,277
PROFIT/(LOSS) BEFORE TAXATION
5,610
15,731
23,277
Taxation
272
(471)
(2,646)
PROFIT/(LOSS) AFTER TAXATION
5,881
15,260
20,632
21
Agenda
Deal Rationale
3
Timeline
4
5
Transaction Dynamics
Overview
2
1 Deal Facts
Summary
7
6
Financial Review and Forecasts
22
Summary
The acquisition of ETB by Sterling Bank is supported by a compelling
business case
Increased critical mass in the retail banking space
Business model scalability at an appealing price
Strong corporate banking proposition
Attractive opportunity for growth and enhanced profitability
… to deliver our long term strategic goals
Globally competitive financial services franchise
Fully scaled business model with institutionalized processes beyond the
stewardship of current owners and managers
Systemically important operator materially impacting all our sectors of business
participation
