FirstRand expands UK business with £1.1bn Aldermore takeover deal

FirstRand has agreed to a £1.1-billion pound takeover of British banking newcomer Aldermore Group to boost its business in developed markets.

The 313 pence per share offer represents a 22.3 percent premium to Aldermore's closing price of 245 pence on Oct. 12, the day before the companies announced they were in talks.

At 0820 GMT, Aldermore's shares were up 2.4 percent at 309.7 pence. FirstRand's shares were up 0.2 percent at 52.49 rand.

Aldermore is one of a group of so-called challenger banks that emerged after the financial crisis to fill a gap in small business lending and capitalise on problems at bigger lenders such as Royal Bank of Scotland and Lloyds.

However, they have been seen as ripe for takeovers recently after a prolonged period of low interest rates and sluggish British economic growth squeezed earnings, while the pound's fall has made them cheaper for foreign buyers.

FirstRand has been looking to return to developed markets following a rethink of its strategy prompted by slowing growth and rising risks elsewhere in Africa. It already runs MotoNovo, a vehicle financing business, in Britain.

African markets have been depressed by a slump in oil and other commodity prices - export mainstays of many economies - leading companies to scale back operations.

Aldermore was founded in 2009 by a former Barclays executive with backing from private equity firm AnaCap. AnaCap said in an email statement that it welcomes the news of the takeover.

Analysts at Canaccord Genuity, who rate Aldermore as "hold", called the offer reasonable.

BROADENING THE BASE

FirstRand said on Monday that further growth could be unlocked in Britain through cross-selling the current product range across MotoNovo and Aldermore's customer bases.

"It (Aldermore) will allow the FirstRand to allocate more financial resources to our operations in Africa, whilst diversifying earnings in the UK," FirstRand CEO Johan Burger said.

Aldermore has been one of the better performing UK challenger banks. It released its third-quarter earnings on Monday, reporting higher nine-month new lending at 2.4 billion pounds thanks to strong demand from small and medium sized businesses, homeowners and landlords.

Once the deal -- which will be put to a vote by Aldermore's shareholders -- completes, FirstRand's UK retail and SME operations will be joined with Aldermore, the African lender said. Aldermore's CEO Phillip Monks will head the new combined UK business.

"We've developed into a multiproduct diversified lender, and having spoken to FirstRand we can expand and accelerate that strategy in the UK," Monks told Reuters.

"I am personally attracted to continuing in my role," he said.

JPMorgan, RBC Capital Markets and Lazard are advising the British company. Credit Suisse and Rand Merchant Bank are acting as financial advisers to FirstRand.

- Reuters