Having reported back to work as a freshly minted MBA, your boss called you into her office to discuss some issues that have been bothering her lately. After discussions, she asked you to determine whether Ecobank Ghana paid too much for The Trust Bank Ghana (TTBG) when she acquired the later in 2011 and whether the acquisition was a positive net present value to shareholders at the time it took place.

Still having some reservations about the acquisitions, she will like you to also tell her where to look for synergies now that the two entities have come together.

She made the following information available to you. Soon after that acquisition, the press reported that ETI, the parent company of EBG, had valued TTBG at a market price of GH220.85 million or US$145.2 million, and purchased SSNITs 61.1% stake in TTBG at GHC 12.62 per share.

On its part, the Ghana Stock Exchange reported that EBG has added 63,100,000 ordinary shares to their issued shares. This was as a result of the issuance and allotment of same to Ecobank Transnational Incorporated under the merger arrangement. This brings the total issued shares of EBG to 293,230,000.

In 2011, before the acquisition, existing shareholders of TTBG, including SSNIT, had a rights issue valued at GH8.32p per share and sold it among themselves to raise some GH66.6 million in new equity.

Additional information. In the 4^th quarter of 2011, EBG traded at an average price of GHC 3.40 per share. Early in 2012, EBG was in the press alerting the world that they had completed re-branding all TTBG assets as EBG. Meanwhile, EBG shares price were then averaging GHC 3.01.

Recent history

Not long ago, the publics attention was caught by an official announcement issued jointly by Ecobank Ghana and The Trust Bank that the two banks are exploring a process that will ultimately lead to the merging of the two businesses, subject to requisite due diligence, regulatory and corporate approval processes.

As at the end of 2010, Ecobank Ghana had the third largest shareholders funds, of Gh218.483 million, while TTB which last year did one of the largest recapitalization exercises in the history of Ghanas banking industry had the 6th largest of Gh122.128 million. Thus, the merged entity would have total shareholders funds of Gh340.611 million, which would make it by far the best capitalized bank in Ghana, well ahead of GCBs Gh241.149 million which would relegate it to second place. Similarly, by the end of 2010, Ecobank Ghana had the second largest loan portfolio in the industry, of Gh868.406 million and TTB the 12th largest, at Gh308.575 million. Combined, through a merger this would give the resultant bank a loan portfolio of Gh1,176.981 million, slightly smaller than GCBs industry leading Gh1,235.197 million. Size apart, the two banks hold the view expressed in their joint statement that the merger would create a bank better able to provide world class banking services and products. Indeed, the merger would combine Ecobanks expertise in servicing multinationals, the public sector and other high end of the market customers such as high networth individuals with TTBs renowned prowess in catering to the needs of small and medium sized enterprises, local corporations and retail customers. The merger proposal has the support of the Social Security and National Insurance Trust, which is the largest shareholder in TTB and a significant shareholder in Ecobank Ghana, whose largest shareholder is Ecobank Transnational Incorporated, whose banking group has total assets of over US$11 billion and 755 branches and offices across 32 African countries, and international offices in Paris, London and Dubai. Here in Ghana though, TTB has the larger branch network of the two banks, with Ecobank only having converted from a merchant bank to a universal bank half a decade ago. This finally ends any hope of a revival of an earlier proposal to merge TTB with Merchant Bank Ghana, another bank in which SSNIT is the majority shareholder. While TTB embraced that proposal, Merchant Bank pulled out last year, opting to stay on its own, which is why TTB consequently went ahead with its own massive recapitalization exercise. Industry analysts see the new merger proposal as a better bet since Ecobank is not only bigger than Merchant Bank (which currently ranks 7th by total assets and 18th by shareholders funds), but unlike Merchant Bank shares TTBs higher end of the market operational efficiency as measured by returns on both assets and equity.

Background information.

Financial Highlights of The Trust Bank GH Ltd. Below is a table displaying our financial highlights from the 2010 Annual Report.

(Cedi million)
		2003	2004	2005	2006	2007		2008	2009	2010
Total Income		8.72	13.12	15.42	19.06	25.76		37.37	44.16	66.96
Net Operating profits		4.58	7.03	7.93	9.02	16.59		16.06	22.23	30.59
Profits before tax		3.59	5.95	6.79	7.80	10.47		13.13	15.80	22.44
Net Profits		1.94	3.71	4.53	5.61	8.01		9.56	11.18	14.59
		2003	2004	2005	2006	2007		2008	2009	2010
Shareholders Funds		4.73	7.15	10.09	13.74	21.75		29.40	40.73	122.13
Total Deposits		39.17	50.90	57.09	70.83	109.77		123.31	163.85	239.55
Total Assets		62.43	89.79	98.24	123.04	220.79		253.01	311.75	463.85

Answering the following should help you respond well to the assignment your boss gave you.

1. How many shares of TTBG were outstanding (issued) at the time of the ETI bid?
2. How much did SSNIT receive for its TTBG shares?
3. It is interesting that TTBG did a rights issue just before the ETI offer. Why do you think they did the rights issue?
4. How many rights must have been issued?
5. Estimate, in cedis, how much EBG paid ETI for TTBG.
6. What is the cost of this acquisition to EBG?