Mega bank merger off, announcement expected this week

By Adeline Paul Raj & Joyce Goh / The Edge Financial Daily | January 13, 2015 : 10:05 AM MYT

KUALA LUMPUR: The proposed mega merger of CIMB Group Holdings Bhd, RHB Capital Bhd and Malaysia Building Society Bhd (MBSB) is off and an announcement is expected before the end of the week, sources said.

“The respective boards are supposed to meet on Wednesday, [tomorrow] when it will be formally expressed that the deal is off,” one source close to the negotiations told The Edge Financial Daily.
The move comes six months after the proposed merger was first announced in July 2014.

The Edge weekly on Jan 10 reported there was a strong possibility the merger could be called off due to several factors, including that the economic landscape has become tougher. Another factor was that RHBCap was seeking a revision of the terms, after the substantial fall in CIMB’s share price.

Sources said instead of an all-share deal in its merger with CIMB, RHBCap now wants a cash portion to be included, making the deal potentially more expensive for CIMB.

Some fund managers said news that the deal is off will be positive for CIMB and RHBCap. This is because their share prices have underperformed due to uncertainties and concerns arising from the protracted negotiations.

“Both have been underperfoming — CIMB more so than RHBCap — because of the uncertainties surrounding the merger, coupled with the tougher operating landscape. Many investors are concerned that a merger of this size, at this time, could turn out negative for the parties if they go ahead with it,” said a fund manager.

CIMB’s stock shed 14 sen or 2.6% to close at RM5.18 yesterday, while RHBCap gained seven sen to RM7.73. MBSB’s stock plunged 22 sen to RM2.19.

CIMB’s stock has shed 25.8% since the structure of the mega merger was first announced on Oct 9, while RHBCap’s share price has declined by 11.1%. MBSB’s stock has gained 1.7% prior to the sharp fall yesterday.

The proposed merger has been structured such that RHBCap would acquire CIMB’s assets and liabilities via a share swap at an exchange ratio of one RHBCap share for 1.38 CIMB shares. This was based on a benchmark price of RM7.27 per CIMB share and RM10.03 per RHBCap share, translating into a price-to-book value (P/BV) ratio of 1.7 times and 1.44 times for CIMB and RHBCap, respectively.

Their Islamic operations, which would then come under CIMB Islamic Bank Bhd, would then acquire MBSB to form a mega Islamic bank at a price of RM7.77 billion or RM2.82 per share. This translates into a P/BV of 1.32 times and MBSB shareholders have a choice to either accept cash or new shares in the unlisted CIMB Islamic group.

This article first appeared in The Edge Financial Daily, on January 13, 2015.

both cimb and rhbcap rallying up to celebrate the cancellation while mbsb plunged further.