Standard Bank sells 60 percent of UK-based Global Markets business to ICBC
Standard Bank is to sell a stake in its London-based Global Markets business to the Industrial and Commercial Bank of China (ICBC).
The two banks have entered into a sale and purchase agreement in terms of which ICBC will acquire a controlling interest in Standard Bank’s London-based Global Markets business.
ICBC will acquire, for cash, 60 percent of Standard Bank Plc, the Group’s UK subsidiary and the primary legal entity used by this business, and its other international operations.
Ben Kruger, Chief Executive of Standard Bank Group said: “We are excited about the prospects of deepening and extending our cooperation with ICBC through the global markets platform that we have built outside Africa.
“The strength and reach of ICBC, our strategic partners, will open a wide range of new business opportunities for the global markets business, while continuing to serve Standard Bank’s African clients as their economies continue to grow and develop.”
The proposed transaction requires the implementation of a series of steps to constitute Standard Bank Plc as the platform for a focused Global Markets business.
The Global Markets business which is the subject of the proposed transaction includes commodities, fixed income, currencies, credit and equities products, and operations in New York, Dubai, Singapore, Shanghai, Hong Kong and Tokyo.
Standard Bank’s other activities conducted outside Africa, comprising Investment Banking, Transactional Products and Services, Corporate Banking and Services Unit, are not part of the deal and will be transferred into new, wholly owned legal entities in London, New York, Dubai and Hong Kong. Sao Paolo, Beijing and the Offshore businesses are also not part of the deal.
The purchase price will be determined as 60 percent of the audited net asset value of Standard Bank Plc at the completion date of the transaction less USD80million.
Based on the net asset value of Standard Bank Plc and other relevant operations as at the end of June 2013, the consideration for this transaction is estimated to be USD765million.
ICBC will be granted a five-year option to purchase a further 20 percent of the outstanding ordinary shares of Standard Bank Plc, which option is exercisable from the second anniversary of the date of completion.
Standard Bank will have a put option, exercisable after ICBC’s option is exercised, to sell its residual shareholding in Standard Bank Plc to ICBC for cash.
The transaction presents an opportunity to realise proceeds on disposal that will release a significant amount of capital for the Group from its operations outside Africa, which can be effectively deployed in furthering the Group’s growth strategy in South Africa and across the African continent.
Completion of the transaction is subject to regulatory approvals in multiple jurisdictions, including the South African Reserve Bank.
Under the listings requirements of the JSE, the transaction requires the approval of the shareholders of Standard Bank, which will be sought at a shareholders’ meeting, expected to be held in March 2014.
Jianqing Jiang, the chairman of ICBC, stated: “By leveraging Standard Bank Plc’s global markets business platform, mature business model, and industrial expertise, this transaction will elevate ICBC’s global markets capabilities in business development, risk management, operations, and innovation in order to better serve our clients’ needs.”
Billionaire Kumar Birla Champions Regional Supply Chains
As the head of the Aditya Birla Group, a US$46bn firm that operates in 36 countries, Kumar Mangalam Birla is no stranger to splashy strategic moves. Yet his recent announcement that he no longer wants to acquire globally distributed supply chains stood out. While many companies have struggled to cope with shipping backlogs, his firm has chosen to pivot and focus on regional networks. Said Birla: ‘We wouldn’t look at a company or a business where you source in one corner of the world and sell in another’.
He cited protectionism, the pandemic, and the limited movement of products and people around the world as ABG’s primary causes of lost profits. And they aren’t alone. Over the past year, 900 of the U.S. and Europe’s biggest IT, defence, and financial services firms have lost an average of US$184mn apiece.
An Era of Global Disruption
Over the past few decades, low shipping rates and rapid delivery times have lulled multinational firms into a false sense of security. In the early 2000s, companies chose to take on significant global supply chain risks in exchange for increased profits. First, it made sense to manufacture higher-value goods, such as electronics, in low-cost regions throughout Southeast Asia, India, and Africa. Second, first-tier suppliers started to outsource the manufacturing of specific components to second-, third-, and even fourth-tiers—leaving supply chains with extremely limited visibility.
So when COVID-19 disruptions struck certain regions, companies were caught unprepared. Usually, these events come few and far between. But over the past ten years, we’ve seen a number of ‘black swan’ events that have thrown the supply chain industry into chaos. Here’s a quick history of the most significant events in recent years, thanks to the MIT Sloan Management Review:
- 2010. China creates export quotas for rare earth elements.
- 2011. The Tōhoku Earthquake hits East Japan; flooding sweeps throughout Thailand.
- 2016-present. Trade wars between the U.S. and China hurt suppliers.
- 2020-present. COVID-19 pandemic shuts down international shipping ports.
Now, Kumar Birla is one of many who want to re-evaluate how we run our supply chains. Though his company has acquired 40+ companies in the last quarter decade, Birla intends to build up local hubs rather than expand operations.
Why Pursue Regionalisation?
Combine Chinese economic dominance, global supply chain vulnerabilities, and major government policy shifts around the world, and you have a storm brewing on the horizon for big multinational firms. As Brookings noted, ‘the biggest risk for trading opportunities in the developing world is growing protectionism in more advanced economies, often dressed up as national security protection’.
Altogether, from the U.S. to the European Union, governments are trying to protect their domestic supply chains, secure adequate stockpiles of materials, and build world-class local networks. Consider Biden’s recent executive order, which seeks to bring semiconductor manufacturing back to home soil, or Japan’s bid to open more memory chip fabrication factories near Tokyo. The Aditya Birla Group intends to react in kind. Said Birla: ‘We’re looking at regionalism as a very big theme’.
Will Others Follow Suit?
In the post-pandemic economy, global businesses must decide whether to expand or contract. On one hand, the Alibaba Group’s Cainiao Smart Logistics Network recently launched a direct flight between Hong Kong, China, and Lagos, Nigeria. On the other, the Japanese government is desperate to make its chip manufacturing domestic. Indeed, as two supply chain strategies diverge in a post-pandemic world, the one businesses take may make all the difference.
Yet Birla is confident that regionalisation is the right call. According to his words at the Qatar Economic Forum, even necessary cross-border transactions should be smaller in scope. And as the Bloomberg Billionaires Index now lists his net wealth at US$10.4bn, up 52% from 2020, he may have the cash to test his theories out. ‘Regional hubs, regional presence, regional employment, catering to regional demand’, he stated. ‘We’re a global company rooted in local economics’.