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The banking group, which paid what analysts described as a laughably inflated price of R400m, sold the business for an equally laughable R50m back to the firm's directors.
This was not unexpected as most analysts expected the bleeding law firm to be sold off for under R100m.
ENF has been sold, with effect from October 31 2004, for a cash consideration of R50m to Edward Nathan, which is owned by the 47 directors of the business, Nedcor announced on Wednesday.
In addition to the purchase price of R50m, the available R33m cash in ENF will be paid back to Nedbank in part settlement of the ENF loan account.
Nedcor played down the overall effect of the ENF sale, saying it will be a loss to the Nedcor group of R20m in 2004.
That's only because Nedcor had already made provision for the capital write-off in its previous financial results, Kokkie Kooyman, financial services specialist at Sanlam Investment Managers, said earlier to Moneyweb.
Kooyman said in an interview with Moneyweb that while Nedcor's foray into the legal field was a costly mistake, CEO Tom Boardman's bold clean-up operation is a positive development.
"The sale of Edward Nathan & Friedand will render Nedcor leaner and meaner," he quipped.
Deal was flawed from start
Kooyman said the deal in which the now-defunct Nedcor Investment Bank took over ENF was flawed from the start, even though the then-CEO Richard Laubscher's intentions were good, Moneyweb reported.
"Aside from the matter of expense, the legal tie-up was not the cash cow envisaged.
"Once ENF came under the Nedcor banner, clients who banked elsewhere migrated to independent law firms instead, resulting in a sort of anti-selection," Kooyman said.
ENF did not only lose clients, but also top lawyers who received a bank salary and not the more usual law firm kind of package with profit share.
I-Net Bridge reports, in terms of the agreement, neither Nedcor nor its subsidiaries will provide funding for the acquisition by the directors.
"No member of the Nedcor group has provided any warranties in respect of the acquisition by the directors."
Michael Katz is one of the directors of Edward Nathan and he has undertaken to remain with Edward Nathan and remains vice-chairperson and a non-executive director of the Nedcor and Nedbank boards.
Both Edward Nathan and Nedcor will continue to refer work to each other where appropriate, provided this does not create any conflicts with clients or breach client confidentiality, Nedcor said.
Low end of fair value
On request from the Nedcor board for an independent assessment of the transaction for purposes of good governance, Ernst & Young Corporate Finance is of the opinion that the transaction has been concluded at the lower end of their fair value range.
However, after considering relevant qualitative factors, Ernst & Young Corporate Finance has nevertheless concluded that the transaction is fair and reasonable.
Nedcor said the sale is in line with its strategy to focus on its core banking business. ENF is not regarded as part of Nedcor's core business.
"Considering all relevant factors, including the need to structure the business of Edward Nathan to continue to attract, retain and properly incentivise professional staff and the expiry of the service contracts of key directors of ENF on December 31 2004, it is the view of the Nedcor board of directors that this transaction represents the best strategic outcome for Nedcor shareholders," Nedcor said.
