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RHB Cap takeover could cost RM26bil [02-06-2011]  
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The takeover of RHB Capital Bhd (RHB Cap) could be based on a price to book value of 2 to 2.5 times which works out to between RM9.70 and RM12 per share, according to preliminary assumptions by certain analysts.

Based on RHB's share base of 2.2 billion shares, the takeover deal will cost up to RM26.3bil.

In its note to clients yesterday, OSK Research said that using EON Capital Bhd (recently bought over by Hong Leong Bank Bhd) as a recent merger and acquisition valuation benchmark and purely applying RHB Cap's return on equity of 14.5% versus EON Cap's 11.1%, this would indicate a price-to-book valuation of at least 1.9 times for RHB Cap.

“However, this is clearly unjustifiable given RHB Cap's superior asset size, deposit franchise and more balanced asset and income mix compared to EON Cap,” OSK said in its note.

A more realistic potential acquisition price would be between RM10.16 and RM10.60 per share, the research house said.

OSK said that if a potential 2.1 times price-to-book value is tagged, it would be equivalent to RM10.60 per RHB Cap share assuming RHB Cap's book value at RM5.08 per share for its financial year ending Dec 31.

AmResearch assumed a price book value of 2 times and put the acquisition price of RHB Capital at RM9.70 per share, based on RHB Cap's current book value of RM4.79 per share.

Meanwhile, shares of RHB Cap raced to a 14-year high yesterday ending up 68 sen or 7.4% to RM9.90 after touching an intra-day high of RM10.40 (see chart).

On Tuesday, Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd said in separate statements that Bank Negara had given permission to them to commence talks with RHB Cap and its substantial shareholders for a possible merger of the businesses of their respective banking groups with RHB Cap.

The development confirmed speculation in recent weeks that the country's largest and second largest banks, Maybank and CIMB respectively, were vying to take over RHB Cap, which is the fifth largest banking group.

AmResearch said assuming Maybank acquired RHB Cap at a price to book value of 2 times, the deal would be value-enhancing for Maybank as the acquisition would work out to RM9.70 per share.

However, assuming a price to book value of 2.5 times, the acquisition would be “neutral” in terms of Maybank's fair value of RM10.40 as the acquisition would be at RM11.98 per RHB Cap share.

In the case of CIMB, the research house said the deal would be value-enhancing if the bank paid a price to book value of 2 times.

Maybank and CIMB ended 14 sen and 2 sen lower to RM8.77 and RM8.35 respectively.

RHB Cap said yesterday it had been notified by CIMB and Maybank that Bank Negara had given them the green light to commence negotiations with RHB Cap and its substantial shareholders for a possible merger.

The deal will go through the acquisition of assets and liability route which requires a minimum 75% acceptance level from shareholders.

Negotiations are likely to involve both the Employees Provident Fund and Abu Dhabi Commercial Bank whose combined stakes amount to 68.8%.

Hence, only an additional 6.2% acceptance level from the remaining shareholders is required for the deal to go through, according to OSK Research

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