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CIMB and Maybank announce takeover bid for RHB Cap

By ANITA GABRIEL anita@thestar.com. my

PETALING JAYA: Let the fight begin. In what is set to become the biggest takeover battle in Malaysia's corporate history, banking heavyweightsMalayan Banking Bhd and CIMB Group Holdings Bhd have declared their interest to wrest control of RHB Capital Bhd, which could cost over RM20bil. Paving the way for this fight, Bank Negara yesterday gave the nod to both banking groups to separately commence talks with RHB Capital and its substantial shareholders for a possible merger of the businesses of the two banking groups. This was announced by Maybank and CIMB in separate announcements to Bursa Malaysia yesterday. The approval to commence negotiations is valid for three months from Bank Negara's letter dated May 31, 2011. We believe that it is incumbent on us to engage on this opportunity to put forward a value -creating merger between the two banks and support the national banking consolidation agenda, said CIMB's group chief executive Datuk Seri Nazir Razak in a statement. It is, however, very early days as negotiations have not even commenced. Our stakeholders know of our track record in this area and we seek their indulgence over the next few weeks and possibly more, for us to explore possibilities with RHB's management and shareholders, added Nazir.

Clash of the titans: Maybank president and CEO Datuk Seri Abdul Wahid Omar (left) and CIMBs Nazir are fighting f or control of RHB Cap.(centre RHB bank's building)

In a separate statement, Maybank said the potential transaction, if it materialises, would be consistent with Maybank's vision to become a regional financial services leader, and support its strategic objectives of being the undisputed No. 1 retail financial services provider in Malaysia and the leading Islamic bank in Asean,

amongst others. The transaction will be evaluated based on the potential for value creation for Maybank's shareholders. This development confirmed heated 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. Sources said due to the rife market talk and leaks, Maybank and CIMB were directed by the central bank to disclose their interest to bid for RHB Cap to curb further speculation. Alongside this major takeover bid, is the sale of Abu Dhabi Commercial Bank's (ADCB) 25% stake in RHB Cap. There are two separate tracks - one is the acquisition of a strategic stake and the other is a full takeover, said a source. At a board meeting held by ADCB yesterday to shortlist the bidders, the source said three top bidders were identified. However, he said the strategic block could most likely go to a sister company of ADCB, a state-owned Sovereign Wealth Fund (SWF) - Aabar Investments or Abu Dhabi Investment Council (Adic). The source said ADCB had received bids for its block from Japan'sSumitomo Mitsui Financial Group, a Chinese bank and several private equity firms including the Carlyle Group, ranging from 2 times to 2.5 times book value of RHB Cap. ADCB will most likely sell to its sister company, another Abu Dhabi SWF, as it has deep pockets and this involves a strategic investment.

Flashback of The Star's previous report saying the battle is on.

It shows Abu Dhabi's commitment to stay invested in Malaysia over the long term. The divestment is part of ADCB's rationalisation programme and also in line with the Government's plan to rationalise its banking assets under a single umbrella, said the source. It is believed that ADIC or Aabar have offered to buy over the stake at 2.5 times RHB Cap's book value.

As at end March 2011, RHB Cap's net tangible asset per share stood at RM4.79 and at 2.5 times book, it values the bank at close to RM12 per share. The counter closed at RM9.22 on Tuesday. Although this includes a sale involving a sister company, it involves an arms length deal which allows ADCB to sell at a profit. This would offer the fastest closing with no uncertainty, said the source. Will this set the benchmark pricing for Maybank or CIMB's takeover of RHB Cap? Not at all, said another source. The sale of the strategic stake is a left-to-right hand transfer. That should not impact the price Maybank or CIMB would have to pay to take control of RHB Cap. Furthermore, those valuations are far too high, said an observer. It is believed that the Employees Provident Fund, which owns 45% of RHB Cap, has yet to receive the notice from Maybank and CIMB for the potential merger while a source said ADCB will submit its application to start talks with the two banks to the central bank today. Meanwhile, RHB Cap board is expected to convene a board meeting over the next two days to discuss the potential merger plans. Ultimately, the key decision makers in the takeover bids would be the board of RHB Cap and the EPF. It is highly likely that both Maybank and CIMB would make a cash and share deal for the takeover. No one is going to offer an all-cash deal as it's far too costly. In terms of who offers RHB Cap a better fit, both Maybank and CIMB can compete on the same ground. It all comes down to how much Maybank and CIMB value their own shares and at what premium, if at all, they would pay for RHB Cap shares in the swap, said a source close to the deal. At the end of the day, if it is earnings dilutive for CIMB or Maybank, it would be hard to justify the takeover to their respective shareholders. They will just walk away from the deal. While it is good to have (RHB Cap), it is not a must have, said the source.