I&M Group’s fourth-largest shareholder East Africa Growth Holding (EAGH) is set to pay a premium of 93 percent on the bank’s current share price to acquire an additional 86.5 million shares in the lender for Sh4.2 billion.
EAGH is purchasing the additional stake of 4.97 percent just months after buying a 10.13 percent holding formerly in the hands of British International Investment (BII), for a reported Sh6.5 billion.
EAGH is a limited liability company registered in Mauritius and is affiliated with AfricInvest, a private equity fund with investments in more than 200 companies in 35 African countries including Kenya.
The bank said in a cautionary notice to shareholders on Wednesday that its board has approved the issuance of the additional shares to facilitate the transaction, at a price of Sh48.42 per share.
Ahead of the disclosure, the I&M share was trading at Sh25.05 a unit, meaning that EAGH would be paying a premium of 93 percent to make its acquisition based on this price.
The share however gained 17.4 percent during trading on Wednesday on the back of the EAGH announcement, closing at an average of Sh29.40 per unit.
“I&M Group board of directors has approved the entry into a subscription agreement by the company and EAGH pursuant to which EAGH has agreed to subscribe for up to 86.5 million new ordinary shares to be issued by the company at a price of Sh48.42 per share,” I&M said.
“The completion of the transaction is subject to certain conditions that are customary to transactions of this nature including receipt of all relevant regulatory and shareholder approvals.”
The EAGH transaction price values I&M Bank at Sh80.06 billion, compared to the lender’s market capitalisation of Sh48.62 billion at close of trading on Wednesday.
EAGH also paid a premium when acquiring its existing stake from BII, having paid about Sh6.5 billion for shares that were at the time valued at Sh3.01 billion at the time.
Such private deals often contain a premium to entice the party holding the shares to sell, with the buyer looking at factors such as potential income after the deal and the valuation of similar transactions elsewhere.
The latest transaction, when completed, will see EAGH’s stake in the lender rise to 14.6 percent, closing the gap on the top three shareholders who at the end of 2023 were Minard Holdings Limited (21.59 percent), Tecoma Limited (18.39 percent) and Ziyungi Limited (17.82 percent).
The issuance of the additional 86.5 million shares will however dilute the effective stakes held by shareholders in the bank, given that it will increase the total issued shares from 1.65 billion to 1.74 billion.
Minard’s stake would therefore drop to 20.52 percent, while the stakes of Tecoma and Ziyungi would fall to 17.48 percent and 16.93 percent respectively.
Retail investors, who as of December 2023 numbered 4,596 collectively holding 373.4 million shares or 22.58 percent of the bank, will see their share of the lender fall to 21.46 percent.
The large premium paid by the buyer allows I&M to raise a significant amount of equity financing without excessively diluting existing shareholders.
