The Largest Malaysian Merger Is Scrapped And What We Can Learn From It

 

CIMB Group Holdings Bhd (KLSE:CIMB), RHB Capital Bhd (KLSE:RHBCAP) and Malaysia Building Society Bhd (MBS:MK) have called off the mega merger that might have created the largest financial institution in Malaysia. According to news report, the reasoning is due to the worsening market condition and the slump in the banks’ share price, the deal no longer make sense. We first mentioned the deal in July 2014 when it was first announced. Take a look at our analysis on whether the deal make sense at that time. CIMB recorded a 16% fall in its Q3 profit due to higher loan impairment in Indonesia. RHB Capital’s profit also fell 2.5%

 

during the same period. Although the deal was not able to go through, the whole episode taught us some valuable lessons.The deal was supposed to be structured as a reverse merger. RHB Capital, which is the smaller of the two major banks, is to issue shares as a mean to acquire CIMB Group Holdings. This is seen as a method to overcome the resistance from the second largest shareholder of RHB Capital, the Abu Dhabi-based Aabar Investments. This is because as an acquirer, RHB Capital would only more than 50% approval from its shareholders for the deal to go through while it would required more than 75% approval if it is in turn being acquired.Aabar Investment has previously invested into RHB Capital at a price of RM10.80 per share. With the deal valuing RHB Capital below its purchase price, Aabar Investment is unwilling accept its losses.It is to be noted that Aabar Investment is a foreign investor in this case and the main shareholder among the three bank that wanted the deal to go through is The Employee Provident Fund (EPF) of Malaysia. It owns about 14.5 percent of CIMB, 41 percent of RHB and 65 percent of Malaysia Building Society Bhd.However, turning to such a technique to silence a foreign investor might not be sending the right message for a country in need of foreign capital investment. Even though the deal seems to be on the verge of a collapse, the episode might make other foreign investors to rethink their option when they are deciding on a major investment into the country.

 

EPF has really miscalculated its move in this deal and has damaged the country’s reputation for foreign investors in the process. It seems that instead of coming out as a winner in the deal, EPF has made a loser out of everyone involved.

 

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All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and does not in any way represent those of his employer and other related entities. Stanley Lim does not own any companies mentioned above.

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