Barclays back in South Africa after raising offer for Absa

Barclays will announce its long-awaited return to South Africa this morning, with a £2.9bn deal to buy a controlling interest in the country's largest consumer lender, Absa.

Barclays will announce its long-awaited return to South Africa this morning, with a £2.9bn deal to buy a controlling interest in the country's largest consumer lender, Absa.

The UK group sweetened its offer to buy a little over 60 per cent of Absa shares, winning approval from the bank and securing permission to do the deal from the South African government.

John Varley, the chief executive of Barclays, will promise 1.4bn rand (£120m) in cost savings from the acquisition, and say that it gives the bank exposure to the fast-growing South African economy.

The deal brings to an end almost nine months of complex negotiations for Barclays, which have involved it having to win over the country's authorities, keen to keep the banking sector under local control, and shareholders, who have quibbled over price.

Barclays was the biggest lender in South Africa until 1986, but was finally forced to pull out after suffering political criticism and customer boycotts in Britain and the rest of the world because of its engagement with the apartheid regime.

Absa is South Africa's biggest consumer lender, with almost 7 million customers, and its fourth-biggest bank by assets. It has 670 domestic branches and 93 branches in four countries outside South Africa. Barclays, meanwhile, operates in 12 African countries, with 230 branches and 700,000 clients.

Mr Varley is keen to tap into a banking market that is more profitable than Barclays' core UK market, and where lending growth is likely to be 15 per cent this year, compared with uncertain prospects for consumer borrowing at home.

Absa said in February that profits for the year to March are expected to be up at least 20 per cent on the previous 12 months.

The banks will announce the details and structure of the deal today. Sanlam and Remgro, Absa's largest shareholders, had indicated that they are willing to sell their entire stakes, which together amount to about 29 per cent. But last-ditch talks with several minor shareholders in the past week encouraged Barclays to sweeten its offer. It is paying 82.5 rand per share, compared with its 79 rand original offer. It will also pay the most recent dividend of 1.80 rand declared by Absa.

Barclays has also changed the structure of the offer because some investors were concerned that they would be disadvantaged if other shareholders didn't tender their stock, and were therefore able to reap all the benefit if the shares subsequently rose. Under the new terms, investors will be required to sell at least 32 per cent of their stock but can offer the rest voluntarily.

South Africa's Finance Minister, Trevor Manuel, formally approved the acquisition yesterday, saying that the potential benefits outweighed any potential disadvantages to ceding control to a foreign-owned bank. The authorisation is conditional on Absa maintaining a locally-based South African chief executive and a South African majority in its executive management after a takeover, he said.

Absa will remain incorporated in South Africa and quoted on the Johannesburg stock exchange.

Black Economic Empowerment rules oblige Barclays to keep 10 per cent of the equity back for local interests, and Absa is also to have a continued free float. The black investor group Batho Bonke has publicly backed the bid.

Several local groups have launched a lawsuit in the US demanding that Barclays pays reparations for supporting the former whites-only government.