STERLING BANK EXPLAINS THE SHARE CONFUSION

Sterling Bank explains share reconstruction
By Gbenga Agbana

WORRIED by several complaints by investors about the recent share reconstruction embarked upon by Sterling Bank Plc, the bank's board of directors has clarified issues on the process.

Specifically, the board, in a statement issued at the weekend, said the reconstruction exercise was carried out after due diligence and approvals from regulatory authorities.

According to the statement, "the five banks that merged into Sterling Bank, entered into a scheme of merger, sanctioned by the court, which provided for two key review exercises to be undertaken in order to, whereby necessary, adjust the relative pre-merger values of the legacy banks. The two review exercises prescribed in the scheme were:

"A close-out audit of the accounts of each of the legacy banks as at 31st December 2005: to take into consideration and compensate pre-merger shareholders for changes that had occurred to the legacy banks' values since 31st March, 2005, when due diligence was conducted on the banks, i.e. the cut-off date for the merger.

"Post-merger adjustments: to further compensate pre-merger shareholders of the legacy banks, for material changes attributable to any of the legacy banks, provided that the aggregate value of such material change exceeded N100 million.

The bank explained further that each of the legacy banks appointed a firm of auditors/ consultants as its shareholders' representative. "The five shareholders' representatives, who derived their power from the court sanctioned scheme of merger, submitted a report dated 13th March, 2007 wherein they unanimously recommended the issuance of additional 13,317,026,285 ordinary shares as compensation shares to be issued to the various shareholders of the legacy banks who hitherto, were the holders of 10,552,847,651 ordinary shares of the bank."

Also, "the shareholders' representatives, mindful of the implication of almost 24 billion shares in issue also recommended a reconstruction of the entire shares.

"The shareholders of the bank, at the 45th yearly general meeting held on 28th August, 2007, approved a resolution for the reconstruction of the entire shares of the bank that is 23,869,873,936 ordinary shares of the bank."

In the statutory notice of the yearly general meeting, which was published in at least two national daily newspapers, it was specifically stated under special business, among others,'to consider, and, if thought fit, to pass the following resolutions as special resolutions: resolution10:'that the directors be empowered to reconstruct the bank's shares as a result of the post-merger share adjustment in accordance with the approved scheme of merger on the basis, terms, and at a time to be determined by the directors'. This resolution was unanimously approved by the shareholders.

The statement added that, "the two key regulatory agencies, the Nigerian Deposit Insurance Corporation (NDIC) and the Central Bank of Nigeria (CBN), in September 2007, separately wrote to the bank to invoke the clause relating to the close-out audit share adjustment in the scheme of merger to compensate the shareholders of the legacy banks as recommended by the shareholders' representatives.

"The Board of directors of the bank consequently applied for regulatory approvals to issue the compensation shares and simultaneously reconstruct the shares from the CBN, the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE); all the approvals were obtained.

"The bank subsequently placed the shares on total suspension from daily trading in order to effect the issuance of compensation shares as well as the reconstruction of the shares of the bank. This reconstruction was carried out at a ratio of 10 new shares for every 19 existing shares.

"It is true that the reconstruction of the original 10.5 billion shares (10 for 19) should have led to a simultaneous doubling of the share price; however, the issuance of the additional 13,317,026,285 compensation shares (also reconstructed) automatically diluted the expected effect.

"The situation was further exacerbated by the current bearish market."

The bank assured the shareholders that the merger/integration process has been completed and the financial institution "is on course to deliver superior return on investments and enhance shareholders' value."