I have read many articles on the acquisition of Union Bank Nigeria by Titan Trust Bank. Many of the hypotheses have focused on digital Darwinism of the century-old bank, chronicling how young people are not patronizing the bank, giving it an imperiled future. The remedy postulated by the authors is this: adapt or you will die like Union Bank.
But today, the lender has put a notice: “Titan Trust Bank Limited (TTB) has become the majority shareholder in Union Bank of Nigeria Plc. This followed an agreement by Union Global Partners Limited, Atlas Mara Limited and other majority shareholders to divest 88.39 per cent shareholding in Union Bank to TTB….subject to regulatory approvals and other financial conditions, would upon completion transfer 89.39 percent of Union Bank’s issued share capital to TTB.”
For academic purposes and since we’re not in session in Tekedia Mini-MBA, I will present an alternative way to look at this deal. Typically, I would have scheduled a Zoom session for our members so that we can have a synchronous conversation so that at the end, everyone learns. We can still do that in Feb when we resume.
Here is what I want to posit: what happened to Union Bank was not majorly because the bank was not performing well. Simply, even if the bank was performing at 4x its current numbers and its major shareholders decide to exit, they could have still gone ahead. Sure, great numbers would have made the acquisition very expensive, diminishing interests from bargain hunters.
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The real issue is this: Union Bank has lost control of itself when it had more than 51% of its shares out there. That three of its shareholders banded together and sold to a 4th investor, giving it super-majority, is part of market systems. If you do not want that, never allow 51% to be floating as those external players can team together and change the equation.
Union Bank’s only option was bidding higher than Titan Trust Bank on whatever those investors were asking for. In other words, Union Bank would be expected to buy itself back by paying investors who held its shares. Unfortunately for the bank, it does not have the funds to do that. Afterall, it sold part of itself to get money from those investors to start with!
That those investors sold to Titan Trust Bank, and from rumors, at a great premium to what the bank was trading at the stock exchange, is actually a great confidence in the bank’s operations. This is not similar to what happened to Blockbuster and Nokia which faded due to massive disruptions from new innovators. This is simply that some investors wanted to exit because one of them needed money badly to pay down maturing debts, and they looked for someone with cash to bail them out.
Union Bank is to a large extent a bystander. But since this is banking where anyone with at least 10% control cannot be hidden, it was looped in as those shares moved hands. So, the bank just watched as the deals were concluded, and at the end, a very small bank swallowed it. Titan Bank has a balance sheet of N136.3 billion while Union Bank is at N2.56 trillion, more than 18x larger.
In the United States where markets allow different classes of shares which make it possible for someone to own 25% of a company and still control up to 70% of its voting rights, this might not be possible, assuming someone holding the special shares is on Union Bank side.
That US structure is the reason no one can remove Mark Zuckerberg who who owns about 13% (down from 28% at IPO) of Meta (yes, Facebook) via different classes of shares but still controls 60% of the votes. Nigeria law does not allow that type of structure; we’re largely 1-by-1 which means 1% ownership delivers 1% voting right in the company.
So, how do you avoid what happened to Union Bank? Follow the playbook of Aliko Dangote: never make more than 50% available for the public. With that, even if all the hunters and vultures gather, they will still be short of the majority! Dangote controls about 85% of Dangote Cement’s available shares and what that means is this: even if all you thousands team together, you can only get to 15%, and that means he remains the Oga.
Of course Union Bank could have avoided the acquisition but for those government bailouts from Central Bank of Nigeria and AMCOM which forced the bank to raise capital, and in the process created the super-holders. But that old Union Bank is different from the current one. The problem though is that the current leadership cannot change the structure because they do not have the funds. Of course, it was the bank that put itself into the old position to start it: creative destruction, people.
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Too many weaknesses, and when you are in such a messy situation, all strategies and equations will fail you.
To hold a higher percentage of shares, it means that you have enough financial capital to keep things going, or that the business creates an enormous value, such that by giving off just 10% – there will be money everywhere to oil the business.
Some moves are way beyond the capabilities of certain people and entities, so it’s a waste of time thinking too much on what could have been done differently, certainly not when everything was setup to fail. You cannot stop a dead man from dying.
Again, we do not have decent number of investors here, what we have largely are economic merchants and bandits, so expecting to grow with their money is your first unforgivable mistake.
Union Bank will join its ancestors and peers, it’s already past midnight, nobody is sleeping and waking, preoccupied with the thought of how to save the old bank.
Yeah, it’s already past midnight and the situation looks like a spilled milk for Union Bank but can they buy back one of the expensive 3 gold diggers no matter what its going to cost because this oxygen is needed remain alive!!!
Its business.. no hard feelings…
Nice one chairman
This is very helpful. Thanks for the very useful inputs sirs
Are you referring to Marxian usage or mainstream economics definition of Creative Destruction in your article? When you consider that the driving forces behind creative destruction is competition and innovation, it’s obviously a stretch to use the term in any form in this circumstance. Moreover, it’s the antithesis considering that politicians often create obstacles to the forces of creative destruction through regulations; meanwhile, in naija, they are the facilitators of such takeover with the help of regulators, of course. No economic theory or concept exist yet to explain a whole bunch of what we do. If they exist, Abokifx would not determine or influence our exchange rate.
Creative destruction on the thesis that we may have Union Titan Bank with the old Union Bank making way. More so, I do think that our financial services sector is fairly competitive when you include what the fintechs are doing. It is the only sector where one can wake up to see an empire disappear. Sure, nothing is free from Abuja in Nigeria but innovations happen in the financial sector
Oga if u no get anything to add rest. No bring argument come here. We enjoy the article and we are mourning Union Bank. No disturbance
Thanks for your explanation Prof.
I have learned greatly from your analysis and I wish to say you’re doing great for young folks ready to learn.
More wisdom sir.
I look forward to enroll in tekedia program this coming year God willing.
Great one
Great analysis as usual Prof. My concern though is why the same country who delight in copying anything West cannot copy the same Western structure of allowing the original owner to control his/her business but rather allow the one with the majority share. Dangote might have kept the hunters at bay because he has been able to manage his beat better.
Very educative, coming at the right time.
Want to acquire financial inteligency like Prof.
I’ve jst begun following you, Sir – !
A Million Tnx, Sir – Prof.
Thanks Prof for the enlightenment, but I think the destruction of Union Bank started when people who were neither interested in the business or had the interest of the bank at heart were allowed to take over the bank.
I am an ex staff of the bank and we all know what happened.
Union Bank was never distressed at any time, it was all politics.
They came, they stole and they killed the stallion. God will judge all of us.
The Bank was healthy and ranked amongst the first three at the time and management of Ebong.
Subsequent appointed Ceo/MDs with little capacities and capabilities came and scattered the Bank’s fortune.
Very enlightening I am inspired to enrol for a course though an
Artist.
Well written and articulated.
I’ve learnt alot and know how to structure my startup comes 2022 .
Thanks Prof….
I missed the last batch of MBA ,hoping to enroll with the next batch in 2022…
This is really educative with clear illustrations. Looking forward to learn more from you. Thank you Prof.
Thank you sir for this simplified analysis. So, Union Bank was Big, NOT Strong, NOT Reliable! How the mighty have fallen!
In depth analysis prof. Thanks and more wisdom.
This is very helpful. Thanks for the very useful inputs sirs
Big? Yes. Strong? Yes. Reliable? Not sure! The Iroko tree has fallen. Very indepth insight of the happenings in Union Bank. Thank you for the analysis.
Well, Most investors are not really attracted to bank shares at the moment considering their slow growth in the capital market as well as the current state of the economy. What this means is that UBN or any other bank will have very limited options in the event of a major restructuring or capital need like this. Put it differently, only another player in the industry or an investor who is well vested with the state of the banking industry will be willing to pay a premium to off take bank shares. The issue of size of balance sheet may not be consequential except the cash or near cash component of the financial statement is analyzed properly and is readily available to weather any economic shock. The future of banking in Nigeria is its ability to leverage on diversified global technology. Titan may just need UBN to sell it’s financial technology considering the wide coverage of UBN in the country which is a departure from what the average man understands about banking in Nigeria. Whether, the majority has been off loaded to one investor or not, the defining factor remains how much the bank lends itself to the technology evolution sweeping the global financial system. So it’s a case of David and Goliath, the size of the bank may not really matter.
This gave Deep Insights, and surely directional for Tomorrow’s Conglomerate thinking and structuring. Thanks
Hmmmm !
Yeah, it’s already past midnight and the situation looks like a spilled milk for Union Bank but can they buy back one of the expensive 3 gold diggers no matter what its going to cost because this oxygen is needed to remain alive!!!
I hope they’ll survive it???
My question is are they going to shutdown the bank? My mum is worried sick?
There is an ethical question on this transaction especially that Tunde Memo was a Deputy Governor at the time these Shareholders acquired these shares and why the premium on the officially quoted price? the regulators will not allow a second rape of this old lady.
Honestly I learned a lot from this. That it is not about gathering so much money to start a business but about creating a structure to help your organisation control itself against whofs with capacity without compassion.
As an ex-staff, I know Sanusi Lamido Sanusi (former CBN governor) , with Tunde Lemo as his then Deputy laid the foundation for destruction of Union Bank through forceful management change and imposition of their “yes-lady”, Funke Oshibodu as the then MD, who subsequently set-up reconcilliatoon Team .that were forced to classified more than 80% of performing loans as non-performing/bad debts.
At the same time Oshibodu and Directors in her management with cronies she brought to the bank were busy granting themselves fat unsecured spurious loans running into tens in some cases hundreds of millions of naira.
Let FG interrogates how Oshibodu got funds to buy Benin Electricity Distribution Company shortly after leaving UBN as MD.
God will judge all of them.
Lessons learnt here are rich and an eye opener. I made similar errors in my earlier start up when I ceded more than 50% of the shares in the mining company. The other directors squander the resources of the company. I have not recovered till now. I had to shut down the company. For Union Bank, like most businesses here, if they are not owner-managed, you will have similar experience like UBN.
An experience garnered.
With everything happening…. Is it advisable to take up a job role with UBN? Anyone with an honest answer will be appreciated.
Thanks for the simplicity in explanations….I feel Union Bank didn’t also play the politics well with the 3 shareholders that sold our. I hope Titan Bank still allows Union Bank to operate with its name…
Great insight Article, thanks
I copied the content below from somebody who was not the author but felt it will help deepen the discussion
There are Eminent Elders here who would know a bit more about the issues raised hereunder than the rest of us. Would they please be kind enough to enlighten us??
Titan Trust bank acquisition of Union Bank
Below are some of the real questions begging for answers
FGN injected N300b to stabilize/recapitalize Union Bank. Federal ministry of finance and CBN can confirm this position.
A further N239b was deployed into the bank by Amcon to buy off toxic assets on the bank’s books
How then did FGN end up with 21% of the bank while Union Global Partners (foreign investment vehicle) walked away with 64% stake when it only invested N78b ($500m @ N155/$ in 2011?
The Bank has now been sold for a fraction of the sunk amount.
Is NASS aware of these issues?
Tunde Lemo was a deputy governor of CBN during the transaction period. By corporate governance provision, is he allowed to be associated with acquisition of this same intervened Bank as a beneficiary?
Union bank was a group comprising of seven companies in 2011 but now reduced to one commercial entity without recourse to FGN
What happened to all the subsisidiaries and/or other assets?
Who acquired what assert and under what terms/ approvals?
Faruk Gumel is the current Chairman of NSIA, a state establishment and at the same time a Group Executive Director with TGI, the major shareholder in Titan Bank the new owners in union Bank Does this transaction qualify at arms length as defined by Nigeria corporate governance provision?
Perhaps the President and Commander in Chief as well as leadership of NASS should ask these questions and more. CBN , Amcon , Federal ministry of finance, and erstwhile Managing direction of Union bank Mr Emeka Emuwa should provide the answers..
A concerned former Union bank staff writes……
Perhaps, the most important set of commentaries here yet. The Nigerian Banking sector is considered to be about the most regulated sector in the country. If indeed there are so many loose ends in corporate governance, what becomes of the economy? Could this be a harbinger for systemic failure via corporate governance deficiencies, and a resultant upending of our politico-banking games?