Maybank and CIMB Scrap Merger Plans with RHBCap

I am glad Maybank and CIMB scrap merger plans with RHBCap. This is such a smart move and GOOD LUCK to Aabar Investments who just “bought” RHBCap at 2.25x book value and see how they can realized gain from their investment. I think they are going to sit on it for a long time and risk to sell their 24.9% at much cheaper valuation like what happen to Primus!

I am even happier when TA Head of Research, Mr. Kaladher, who agreed they are better deal out there like AFG and Affin. He clearly mentioned the name of Affin. I wish to re-iterate here, with RHBCap out of the way, there are actually not many banks in Malaysia that is available for acquisition and that should mean smaller bank like AFG and Affin deserves “scarcity premium”. I am not surprise to see Affin and AFG share price to go higher from here.

UPDATE 4-Malaysia’s Maybank, CIMB scrap merger plans with RHB

7:08am EDT

By Liau Y-Sing and Min Hun Fong

KUALA LUMPUR, June 23 (Reuters) – Malaysia’s largest two banks, Maybank and CIMB Group , have dropped separate plans to acquire smaller rival RHB Capital in a deal valued around $7 billion, dashing the nation’s hope of creating Southeast Asia’s most valuable lender.

The two banks confirmed a newspaper report that merger talks were off, in light of Abu Dhabi Commercial Bank setting a high valuation bar when it sold its 25 percent stake in RHB to Aabar Investment at 10.80 ringgit ($3.56) a share last week.

The price paid by Aabar values RHB at around 23.7 billion ringgit ($7.8 billion), nearly 18 percent above the current market value of $6.6 billion. Other shareholders likely would also expect at least that much under a deal.

“Based on our various discussions and our assessment of the present expectations of key stakeholders, we do not believe that we will be able to arrive at a value creating merger,” CIMB Chief Executive Nazir Razak, the brother of Malaysian Prime Minister Najib Razak, said in a statement.

The news, which was first reported by Singapore’s Straits Times, sent RHB shares almost 6 percent lower, and delays impending moves to cut the number of banks from the current 10.

An earlier round of mergers in 1998 shrunk the number of lenders to 10 from 54.

“This (RHB deal) is working out to be a stumbling block in the whole Malaysian banking consolidation story,” said Kaladher Govindan, head of research with TA Investment Bank.

“There are still smaller banks in Malaysia to look at, from the likes of Affin, for instance. It appears that RHB Capital will be left alone for some time because it has some good synergies with its new 25 percent shareholder.”

A source with knowledge of the discussions told Reuters that CIMB decided to call off the merger talks after Aabar Investments snapped up the stake in the bank at a relatively high price. The source was not authorised to speak to the media and declined to be identified.

Malaysian newspapers have said that the 10.80 ringgit per share paid by Aabar for ADCB’s 25 percent stake was high as it valued the bank at 2.25 times book value.

In comparison, the last bank takeover in the country — Hong Leong’s acquisition of EON Cap earlier this year — was done at only 1.4 times book.

“The Aabar deal kind of kept a floor on valuation which is undoubtedly difficult for Maybank and CIMB to pay,” said a Dubai-based banking source, who declined to be identified because of the sensitivity of the matter.

Malaysian pension fund EPF is RHB’s biggest shareholder, owning a 45 percent stake.

 

COMPLICATIONS

The Straits Times quoted sources as saying the stake sale by Abu Dhabi Commercial Bank has complicated the proposed takeover of RHB.

“Pricing wise, the takeover doesn’t make much sense now. There is going to be a cooling down and the two banks may revisit the prospect of a merger with RHB at some other time,” a senior financial executive, who spoke on condition of anonymity, was quoted as saying by the newspaper.

A consolidation of the banking sector was at the heart of Prime Minister Razak’s initiative to create regional banking champions, as part of the government’s plan to increase investment in the Southeast Asian nation and move it up the value chain.

A takeover by Maybank would have created the biggest banking group in Southeast Asia by market value, at around $28.4 billion, while a CIMB-RHB combination would have a combined value of around $27.6 billion. Both would exceed the $26.7 billion of Singapore’s DBS .

Credit Suisse is advising RHB on the transaction while Nomura is helping Maybank. Morgan Stanley is advising CIMB, a source told Reuters.

RHB shares settled nearly 6 percent lower after the news, weighing on the broader Malaysian market that fell 0.3 percent. CIMB and Maybank shares were little changed. (Additional reporting by Niluksi Koswanage in KUALA LUMPUR, Dinesh Nair in DUBAI, Saeed Azhar and Harry Suhartono in SINGAPORE; Editing by Muralikumar Anantharaman)