CBZHL / ZBFHL deal collapses

LIVINGSTONE MARUFU

The long- anticipated merger between CBZ Holdings Limited (CBZHL) and ZB Financial Holdings (ZBFHL) has  collapsed  with insiders attributing the fallout to asset stripping demands  in the targeted firm by the Competitions and Tariff Commission (CTC), it has been learnt.

As was first reported by Business Times, a market leader in business, financial and economic reportage, two weeks ago, the deal , which had been in negotiations for four years, hit a major  snag after CBZHL refused to proceed with the merger that would leave ZBFHL as a hollow shell.

CBZHL chairman, Luxon Zembe revealed yesterday that ZBFHL’S disinvestment from key subsidiaries such as Mashonaland Holdings, Cell Insurance and ZB Reinsurance, was a deal breaker, as this would have left ZBFHL  a shell which was of no value to them.

Speaking to this publication,  Zembe  said  the proposed asset disposal stripped ZBFHL of its core value, making the merger unviable.

“Though we were given the go-ahead (with the merger) , the conditions precedent required ZBFHL to disinvest from its key assets- Mashonaland Holdings, Cell Insurance and ZB Reinsurance. This essentially left us with a shell. The assets they wanted to strip away were the very essential of what we sought in the merger. It made no business sense,” Zembe explained.

“They would have taken the fruit that we would have wanted to consume as that where value was. That was stripping the institution of its core asset  then you can merge, it doesn’t make sense.”

He added that the move was contrary to the spirit of good faith negotiations.

“We spent  countless hours in meetings, working towards what we believed was a shared vision. To later receive conditions that undermine the entire purpose of the merger was disappointing,” Zembe stated.

He criticised the length of the negotiation process, calling it wasteful and  detrimental to CBZHL.

“Over the past four years, we lost opportunities and value. Investors and stakeholders werev left in suspense, only to reach an outcome that goes against the national strategy of building and upper middle income economy by 2030,” he said.

“We also looked at a situation where we would look at how we would rationalise our asset portfolio after merger. And we had generally agreed on that, that yes, we would be happy to rationalise our asset portfolio after merger. So we were taken by surprise that when they (CTC) then came back to us and told us their final position, they were saying it’s now a condition precedent,” Zembe said.

“This  was also not negotiating in good faith, because we spent a lot of time, several meetings discussing, engaging each other. And it came up with what we perceived, what we understood was a great position on the way forward, in the interest of the country, in the interest of the organisation, in the interest of all our shareholders and stakeholders at large. But unfortunately, when eventually they came up with what they said was their final position, it was completely the opposite.”

Irked by such a long time of negotiation, Zembe said there was  absolutely no good reason or justification for these delays in making final decisions on this major deal, taking four years.

According to him, CBZHL has come out poorer out of that deal.

“Absolutely no good reason at all.  And during that whole period of four years, the organisation has lost opportunities, lost value, because everybody, stakeholders, investors, were kept in suspense for four years. And at the end of it, you come up with something that is even worse, as I say, for the country, and totally misaligned to the national strategy.

“We want to build an upper-middle-income economy by 2030.  How do you build it if you are destroyed?  Because what basically they were asking us is to destroy rather than construct and the competitive issues they really talked about, we don’t see, and it doesn’t make sense at all,” Zembe said.

He argued that ZB has only 5%  of the market share and when it merges with the  24% market share of CBZ, it’s even less than 30%.

This, he argued, was not going to be a monopoly, but  a strong institution which would anchor the national strategy, which would support business robustly  in a meaningful way, which could go out there and be able to mobilise resources for the country.

“But unfortunately, that all fell on deaf ears, and we thought we’d understood each other, but unfortunately, what came out of it eventually was that, okay, you know, it fell on deaf ears, or for some other reasons, just not to them, they decided to kill the deal and to kill the national strategy.

But our vision for 2030 is an upper-middle economy. How do we get there when we’re busy destroying, when we’re not building strong blocks, when we’re not, you know, building the foundations that we need in order to be able to get where we want to get to?,” Zembe asked.

CBZHL also objected to conditions imposed by the CTC, including a two-year moratorium on staff retrenchments.

“We were open to rationalising  our portfolio over time, the conditions placed by CTC were unreasonable. Accepting them would have destroyed value for shareholders and undermine our vision of building a robust financial institution,” Zembe said.

“It was a bitter pill to swallow, difficult to accept, and in fact, to accept those would be tantamount to, you know, really destroying value for our shareholders.  For both CBZHL as well as ZBFHL, and this is why we say, look, okay, you know, if still common sense cannot prevail, it makes it difficult for us to proceed with those deals, and we would possibly run a look elsewhere, where we can be able to create value for our shareholders,  where we can be able to create value for the country, and that’s exactly what we’re doing, and aggressively, we’re doing it aggressively.

“We are aligned to the President’ (Emmerson Mnangagwa)’s mantra, we are aligned to the President’s vision, but some of the officers (at CTC), sorry to say, they are not aligned.”

Another contentious point was the requirement for the two banks to operate separately post merger.

Zembe criticised this as unworkable and contrary to the intended synergies of the merger.

“CTC wanted us to follow the FBC- Stanchart model which does not work for our strategy. It is not CTC’s business to tell companies what strategy they should follow or adopt. CTC should not dictate how companies should run their businesses. It’s outside their mandate and bordering on usurping their authority.

The collapse of the deal is expected to have a significant impact on share prices.

Tafara Mtutu, an investment analyst with Morgan & Co, predicted a reversal of fortunes for both companies.

“Usually, when the transactions like these is announced, the target company’s shares typically is often at a premium as the acquiring company [CBZHL] at a controlling stake therefore the purchase price has a premium. When the news of the acquisition was made public the share price of ZBFHL was going up at the same time the share price of the acquiring company was going down.

When the deal collapses like this we tend to see the reversal  of fortunes of the share prices. In this case the CBZ share prices will go up as it is no longer paying that premium to the ZB while the target  company share price goes down,” Mtutu said.

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