Co-founder of Atlas Mara Ltd, Diamond Bob, will raise his investment in Union Bank of Nigeria Plc, from 31 per cent to 44.5 per cent.
To achieve this, he plans to sell his stake in Atlas Mara, which has dropped almost 80 per cent since an initial public offering. He will raise more than the company’s market value by selling a 35 per cent stake to Fairfax Africa Holdings Corp.
Union Bank is Atlas Mara’s single biggest investment in Africa. The bank announced plans to raise capital through a rights issue in November as Nigeria’s small- and mid-sized lenders struggled to cope with a contraction in the economy of Africa’s biggest oil producer.
Atlas Mara agreed to acquire an indirect 13.4 per cent shareholding in Lagos-based Union Bank from the Clermont Group for $55 million, it said. Union Bank is going through regulatory approvals and will then start the share sale, spokeswoman Ogochukwu Ekezie told Bloomberg.
It said Atlas Mara, which owns banks in seven African countries, has plunged in value since its December 2013 Initial Public Offering (IPO) after growth across the continent slumped and currencies weakened amid a commodities rout.
“The firm expects to get $200 million from selling new stock to existing shareholders and Fairfax Africa and will also issue a fresh convertible bond to the Toronto-based investment company, the company said in a statement on Wednesday. Atlas Mara will use the proceeds to boost its holdings in Union Bank of Nigeria Plc to 44.5 per cent from about 31 per cent,” Bloomberg report said.
Diamond, 65, in February ousted Chief Executive Officer John Vitalo and pledged to cut annual operating costs by $20 million after rising expenses threatened the company’s ability to expand through acquisitions.
“A strategic partnership with Fairfax Africa creates a strong relationship between two like-minded, long-term investors in Africa. Each is focused on capitalizing on the long-term growth potential of Africa and provides permanent capital to support growth,” Atlas Mara said
The partnership with Fairfax Africa, which last year bought Zurich Insurance Group AG’s South African business and rebranded it Byte Insurance, will give Fairfax four of the nine seats on Atlas Mara’s board. A new management incentive plan will also be put in place, while Diamond will continue as Atlas Mara’s executive chairman, the company said. Existing investors face a dilution of about 35 percent, according to data compiled by Bloomberg.
Fairfax Africa agreed to buy at least 30 percent of the $100 million of new shares at a price of $2.25 apiece, representing an implied purchase price of 0.33 times book value, the company said in a separate statement. Atlas Mara’s stock has traded at an average this year of $2.26, according to data compiled by Bloomberg. The shares rose 1 percent to $2.54 as of 1:05 p.m. in London, giving the company a market value of $197.5 million.
“Banks are at the forefront of economic development in sub-Saharan Africa,” Prem Watsa, Fairfax Africa’s chairman, said in the statement. “Atlas Mara represents a unique opportunity to invest in many profitable banks in the region at a very attractive valuation.