LONDON (ShareCast) - (ShareCast News) - BGEO Group announced on Monday that it intended to demerge into a London-listed banking business - Bank of Georgia Group - and a London-listed investment business - BGEO Investments.
The board said it believed a demerger of the businesses would deliver "additional long-term value" to shareholders by creating two distinct entities, each of which would have "enhanced" growth opportunities in the growing Georgian economy.

"Both businesses are already leaders in their respective fields, with separate strategic, capital, and economic characteristics and strong and knowledgeable management teams," the board said in its statement.

It said it believed the demerger would benefit the two businesses in a number of areas, primarily providing greater flexibility for each business to manage its own capital and human resources and pursue strategic options appropriate to its respective sector, whilst avoiding the potential for conflicts of interest between the businesses.

The board said the demerger would also allow each business to actively and independently pursue further consolidation opportunities and value-accretive partnerships and joint ventures in their respective markets.

As a separate entity, BGEO Investments would not be subject to the banking regulatory regime, the board noted, improving its ability and flexibility to allocate capital, take advantage of various investment opportunities and better execute its growth strategy.

The demerger would also enable each business to adopt a capital structure, balance sheet and financing strategy which will more efficiently meet its individual requirements, the board said, as well as separate management teams which would help the two demerged businesses to maximise their performance and make full use of their available resources.

BGEO said the two businesses would also see management and employee rewards align more directly with business and stock market performance, helping to attract, retain and motivate the best people.

The board said Bank of Georgia would continue to represent one of the "largest, well managed and strongly capitalised" banking businesses in Georgia with superior returns.

BGEO Investments, on the other hand, would continue to invest in Georgian businesses, largely raising funds through its own financing relationships and resources.

It said BGEO Investments would be "the only professionally managed publicly-listed investment company" in Georgia, with a track record of more than 10 years of successfully investing in and growing companies in the Georgian economy.

The demerger of the businesses would also allow investors to make their own decisions on capital allocations between the banking and investment businesses, the board said.

"After making significant progress in each of our two main businesses in recent years, and following a recent strategic review, we are clear that a demerger is the right way to enable each of Bank of Georgia and BGEO Investments to make the best use of their respective opportunities in the rapidly developing Georgian economy," said group CEO Irakli Gilauri.

"The demerger will allow them to develop independently, whilst also avoiding the potential for any cross-business conflicts of interest.

"As such the demerged businesses will be much better placed individually to maximise their long-term potential."

Kaha Kiknavelidze, CEO of Bank of Georgia, said the separation of the banking and investment businesses would not change the bank's strategy to continue delivering a "highly successful, growing" business with a "clear goal" of achieving a return on equity in excess of 20%.

"The bank has an extremely talented management team and employee base, strong retail and corporate customer relationships, and we expect the demerger to create a new set of opportunities with prospective corporate customers in all sectors of the economy, including those where BGEO Investments already has business interests, as well as BGEO Investments portfolio companies."

BGEO Group chairman Neil Janin added that the directors believed that the demerger was in the "best long term interests" of both the banking and investment businesses, and therefore the group's shareholders.

"Bank of Georgia and BGEO Investments will both be significant standalone entities, financially robust and well-placed to execute on their respective strategies.

"Strong independent boards and management teams are ready to take both Bank of Georgia and BGEO Investments forward, and to continue creating value for shareholders," Janin explained.

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