he grand deal that would have created a regional banking champion has fallen flat even before it could take off. Barely a month after they expressed their interest to take over RHB Capital Bhd, both Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd announced yesterday that they were no longer pursuing merger talks with the country's fifth largest bank.
Maybank announced to Bursa Malaysia that its board had decided not to pursue the possible merger “in light of recent developments and following further deliberations” at this juncture.
Similarly, CIMB Group also said it had ceased negotiations with RHB on a potential merger exercise. “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 Group chief executive Datuk Seri Nazir Razak said in a statement.
“Merger negotiations are both resource consuming and distracting for staff and stakeholders. Therefore, we prefer not to prolong our discussions unnecessarily, allowing all parties to return to business as usual' as soon as possible,” he added.
Even so, sources have not ruled out a possible merger between these parties “not too far into the future.”
RHB Capital's share price, which has been on an uptrend since the announcement of the takeover bid, suffered a major beating yesterday, shedding 6% of its value, or 57 sen, to close the day at RM9.03 on news that the merger talks had fallen through. RHB Cap's largest shareholder is the Employees Provident Fund (EPF), which owns a 45% interest in the banking group.
It's “business as usual for us,” EPF chairman Tan Sri Azlan Zainol told StarBiz. Azlan, who is also RHB Bank Bhd chairman, said: “We will continue to serve our customers and pursue our strategic direction and initiatives. The group has performed well over the years and will continue to achieve higher level of profitability as a stand-alone entity.”
According to sources, the talks for the potential merger started heading south very early this week. The main stumbling blocks were pricing and divergent interests.
“It was clear that the talks were not going to have a good ending. If there was not going to be a positive outcome, it would be better to stop it as soon as possible. The situation was getting too complicated. That could be why the two banks decided to walk away,” said a source.
The breakdown in talks closely followed the sale of Abu Dhabi Commercial Bhd's (ADCB) 25% stake exactly a week ago to its sister company, Aabar Investments PJSC, at RM10.80 per share. It is believed that Bank Negara had last week set a condition that ADCB's sale price of the block should be adjusted accordingly if the offer price for the merger was lower than RM10.80, which was not received well by parties espousing free market forces.
The price tag of RM10.80, which works out to 2.25 times the book value of RHB Cap, had inadvertently set a floor or indicative price for the takeover bids by Maybank and CIMB, which the suitors were evidently not willing to pay. Even so, industry observers had pointed out that the transaction between ADCB and Aabar was not an arm's length deal as they were related parties and should not have set the benchmark pricing for the takeover exercise. Evidently, not everyone had agreed with that assessment.
An advisor to Aabar said the sovereign-owned investment agency would proceed as signed to acquire the 25% stake in RHB Cap as it “believes in the long-term value proposition with EPF as a long-term partner and would support any proposal that enhances shareholder value whether it is organic growth, mergers and acquisitions or a combination.”
“Aabar has transacted the purchase on a willing buyer-willing seller basis after thorough analysis and believes RHB Cap is a good investment in the long term,” he added.
Analysts were not surprised by the outcome as most had expected a “walkout” largely due to the wide gap in price expectations. One analyst said the sharp fall in RHB Cap's share price yesterday was an “expected knee-jerk reaction as it has risen significantly on the takeover talks.”
“Investors were definitely looking forward to CIMB buying RHB Cap because it (CIMB) was well integrated with other financial institutions previously. An integration would have reaped real operational benefits for RHB Cap. Now that this is not happening, it's a great disappointment,” said the analyst.