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Merging Malaysian banks enter into exclusivity agreement

Publication Date : 11-07-2014


CIMB Group Holdings, RHB Capital and Malaysia Building Society Bhd (MBSB) have announced that they had entered into a 90-day exclusivity agreement for a proposed merger of the three financial institutions and the creation of a mega Islamic bank.

This effectively would mean that there would not be any competiting bids for RHB Cap during this period, leaving the parties to concentrate on striking a deal acceptable to all.

The three financial institutions announced yesterday that they had received the green light from the Central Bank to commence exclusive negotiations for the proposed merger.

Under the terms of the agreement, the parties have 90 days to hammer out the pricing, structure and other relevant terms and conditions for what could be the formation of the country’s largest bank by assets.

They announced that the Central Bank’s approval was valid for a period of six months from yesterday.

The proposed merger plan includes forming an enlarged Islamic banking franchise with MBSB.

In a joint-statement, the parties said: “There will be an automatic extension of the exclusivity period upon a submission being made to the Central Bank by the parties on the proposed merger, until the date of execution of the relevant definitive agreement(s) to effect the proposed merger.”

This means that Malayan Banking Bhd (Maybank), which is currently the largest banking group in the country with an asset size of 578.01 billion ringgit (US$181.45 billion) as at March 31, would be out of the fray – at least during the exclusivity period.

The enlarged banking group, which would have combined assets of 613.72 billion ringgit ($192.66 billion), could displace Maybank as the nation’s largest bank by assets.

In 2011, Maybank and CIMB had raced to acquire RHB Cap for 20 billion ringgit ($6.28 billion), which eventually lapsed due to issues that were speculated to revolve around pricing.

Industry officials said that CIMB staff had been told that the proposed merger was in its early stages.

“The staff were told to anticipate significant changes and not to be distracted by the developments,” said an official.

CIMB Group chief executive Nazir Razak said in the statement that the parties involved wanted to get into detailed discussions to validate the corporate exercise.

RHB Cap group managing director Kellee Kam said in the announcement that they believed there was inherent value in the proposed merger.

“There will be many opportunities which will arise from this proposed merger. We hope to explore this further through our discussions,” he said in a statement.

Meanwhile, MBSB president and chief executive officer Ahmad Zaini Othman said it was exciting for MBSB to have the opportunity to be part of a mega Islamic bank.

Industry observers opined that the gargantuan merger would change the landscape of the banking sector.

Sources expected the deal to be done at between 1.7 to 1.75 times book value based on CIMB’s current valuation of 1.7 times.

Assuming the transaction was done at 1.75 times book value, they estimated the enlarged entity’s market capitalisation to be worth in excess of 90 billion ringgit ($28.25 billion).

The Employees Provident Fund is the shared major shareholder in the three banks, holding 40.76 per cent in RHB Cap, 64.73 per cent in MBSB and 14.46 per cent in CIMB.

Speculation is rife that the deal would possibly involve a share swap between CIMB with market cap of 60.36 billion ringgit ($18.95 billion) and RHB Cap with market cap of 22.21 billion ringgit ($6.97 billion), as well as an outright buyout of MBSB with market cap of 6.26 billion ringgit ($1.97 billion).

Trading in CIMB, RHB Cap and MBSB shares will resume today.


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