BASIC TERM & DEFINATIONS OF M&A a) Merger : One firm absorbs the assets and liabilities of the other firm in a merger. The acquiring firm retains its identity. In many cases, control is shared between the two management teams. Transactions were generally conducted on friendly terms. b) Acquisition : Traditionally, the term described a situation when a larger corporation purchases the assets or stock of a smaller corporation, while control remained exclusively with the larger corporation.


ABOUT THE BANKS 1. Maybank The Maybank Group is Malaysia’s financial services leader with a network of over 2,100 offices in 17 countries worldwide. Maybank had branches operational in numerous parts of Malaysia as well as Singapore, Brunei, Hong Kong and London. The bank also has large interests in Islamic banking through Maybank Islamic Berhad and insurance via its Etiqa subsidiary.The Bank is principally engaged in the business of banking in all aspects, which also include Islamic Banking Scheme operations. In 2011, Maybank was ranked at 458th in the Forbes Global 2000 Leading Companies with market cap of USD 20.98 billion. 2. CIMB Bank CIMB Group is a regional universal bank operating in high growth economies in ASEAN. CIMB Group has the widest retail branch network across the region and is an indigenous ASEAN investment bank. CIMB Group has presence in 14 countries, covering ASEAN and major global financial centres. The principal activities of the Group are those of investment holding, management company, property management, provision of consultancy services and dealing. In 2011, CIMB was ranked at 465th in the Forbes Global 2000 Leading Companies with market cap of USD 19.51 billion. 3. RHB Bank In 2011, the RHB Banking Group is currently the fifth largest fully integrated financial service group in Malaysia. RHB Bank is one of the 9 anchor Banks in Malaysia and offers a comprehensive range of financial products and services ranging from retail, commercial and corporate banking to Islamic products and services and electronic banking. RHB Bank has built an extensive branch and Sales and Service Outlets network of over 200 offices throughout Malaysia. RHB Bank also has a regional presence in the region with branches in Singapore, 1

which value RHB Cap at 2. I would consider there may have pros and cons for both companies if one of them proceeds to acquiring RHB Cap. Abu Dhabi Commercial Bank (ADCB) made a significant headline when it sells its 25% stake in RHB Cap to its sister company.25 times RHB Cap book value. Of course.e. 2. EPS should be higher for the combined entity than the EPS of the standalone acquiring bank). for RM10. Aabar Investment.0 THE ISSUES : MERGER After reading and analyzed all the sources related to the issue. we may do a simple merger analysis to compute what is the maximum price that will be offered by both Maybank and CIMB (under a 100% share exchange) scenario. RHB was ranked at 1097th in the Forbes Global 2000 Leading Companies with market cap of USD 5. Based on this presumption.Nazri@2005327443 Bangkok and Negara Brunei Darussalam. How much would Maybank or CIMB pay for RHB? We might have been wondering what is the maximum price would Maybank or CIMB pay for RHB? Is RM10.80 per share a "deal breaker"? Management of Maybank and CIMB have been saying that they will only do the deal if the deal is earnings accretive (i. Goals • By understanding the goals of each organization. between the dates. FIN 664 2 . 3. as part of the government's plan to increase investment in the Southeast Asian nation and move it up the value chain for both companies. • A consolidation of the banking sector was at the heart of Prime Minister initiative to create regional banking champions.0 CONCLUSIONS After reviewing in the case of merger between Maybank-RHB Cap-CIMB.80 per share. 4. Why Maybank and CIMB gave up on RHBCap? It is to believe that the main stumbling why Maybank and CIMB gave up on the merger process due to the blocks were pricing and divergent interests. either the management of Maybank or CIMB will have an easier time understanding whether they should complete the deal or not. in my own review.63 billion. In 2011. I would like to highlight the 2 main points below : 1. 1.

4 billion.3 billion. RHB Bank’s corporate centric loans complement Maybank’s consumer centric loan profile. 6. this will fill a gap in its regional map and grow CIMB’s lending business there. Products / Services • On the surface. • By having full Islamic banking license from BNM. Bottom-line. Maybank for example. • CIMB has a limited banking license in Singapore. So. Maybank or CIMB can keep their own identity and demote other. CIMB. • So. 3. or RHB. and with its 2 branches. this would solidify further Maybank’s position as the largest foreign bank in that country. at around $28. leading the wholesale and FIN 664 3 . they already have their own and unique identity in representing their own brand and corporate image. Maybank will benefit from RHB Cap’s strong government and corporate lending business. 4. Business synergy • The functions of synergy allow for the enhanced cost efficiency of a new entity made from two smaller ones . adding RHB Cap’s business on top of its own strengths in that area would not mean duplication of business but will large it size and expanse the business area. the merger will propel Maybank to become “a truly Pan-Asean franchise. But the acquisition allows it to raise its exposure in Singapore to 9 branches. • For CIMB. Brand considerations • Either Maybank. • So. • While a CIMB-RHB merger on the other hand. Maybank may benefit from the increased distribution reach in Singapore with its own 22 Maybank branches strengthened by seven RHB Bank’s branches. 5.synergy is the logic behind mergers and acquisitions. if merger happen. as they relatively stronger in the small and medium enterprise loan segment.Nazri@2005327443 2. • As for Maybank. with its 22 strong branch network in Singapore. Expansion of business license • One of attraction of RHB Cap is that they already have 7 branches and full license in Singapore. has been leading in Malaysia banking industry for over three and a half decades. To gain economies of scale • A takeover by Maybank would have created the biggest banking group in Southeast Asia by market value. would see a combined market capitalisation of US$27. The strongest name becomes the company name and the weaker one is demoted to a divisional brand or product brand. both Maybank and CIMB would exceed the $27. where there is minimal duplication in terms of branch proximity. just marginally below DBS but overtaking both Singapore’s OCBC and UOB.3 billion of Singapore's DBS.

These disruptions can ultimately affect the company's revenues. especially if one were to consider the larger degree of revenue and business duplication between CIMB-RHB. it wasn't a good time for CIMB but they had to move or risk missing out forever. FIN 664 4 . 8. RHB Bank's presence in Thailand (it has one branch currently) will also snugly fit into Maybank's entrenched investment banking business in the country through Kim Eng Thailand. Kim Eng is of a different scale. many of their staffs are turning to other banks while Hong Leong Bank is launching and fighting its merger plans. given the number of acquisitions that Maybank would have to digest over the next few years. They does not have an investment banking operation outside Malaysia so there's no overlap there. 7. Business disruption • As a result of the difficulties in merging operations. acquiring RHB Capital solely for scale would certainly be value-destructive to CIMB. A prized asset of RHB Cap is its new retail banking model “Easy by RHB” of 155 outlets which has been highly successful in penetrating the mass market customer segment. and employees. This would plug the gap for CIMB which largely focuses on the more affluent consumer segment. notably Kim Eng and Indonesia’s bankgroup PT Bank Internasional Indonesia (BII) Tbk. An integration would have reaped real operational benefits for RHB Cap. With the group already having a market leading foothold in Malaysia via its investment and corporate banking franchise. Just like EON Cap. • But there has to be a complementary fit for CIMB.Nazri@2005327443 • Islamic banking platform in all major markets”. same situation when Southern Bank comes into play. hence not much integration that is needed to be done. it is clearly shows that CIMB has a track record in creating value from bank mergers that is unparalleled in Asia and beyond Asia. This should not be a stumbling block in the bank's bid for RHB Cap. systems. In addition. margins and profits. • Maybank and CIMB may think that the merger talks would takes a long time to consider. late shipments. business disruption can occur. Time consuming • Back in 2006. • As for Maybank. • Perhaps. and it may affects the day-to-day operations of RHB Bank. it could be a distant future before it would consider another merger. and missed deadlines. But. • Such an outlook would require a reasonable time frame for Maybank too. • Given the fact that Hong Leong now will be busy merging with EON Capital over the next two years. This can take the form of erratic inventory levels. investors were definitely looking forward to CIMB buying RHB Cap because CIMB was well integrated with other financial institutions previously.

13. • Being second can be vexing for CIMB. when it comes to key banking barometers such as total assets. • Indirectly. • The merger may lead to a bigger monopoly in the financial sector that recent crisis involving US’s Lehman Brothers. But it was too late. which has built outstanding franchises in the domestic commercial and investment banking businesses and has steadily gained much ground in the region. this bid for RHB Cap is crucial on so many levels. Even with all that. this would also lead to foreign exchange outflow from the country and only benefited to ADBC in view at our Malaysia banking expense. CIMB had also tried to swoop in for Kim Eng just as news leaked that it was on Maybank's cross hair. and the American Insurance Group. which has complicated the proposed takeover of RHB. 11. Abbar Investments at a relatively high price.Nazri@2005327443 9. Professional Ego • It is precisely for this reason that for CIMB. it has long been second to Maybank. Citigroup. 10. • If market wags are to be believed. Unhealthy monopoly • Perhaps the merger would not add any value to the market this time as it was a purely local exercise involving domestic players that serve a similar clientele. • The merger twist started when Abu Dhabi Commercial Bank (ADBC) selling its 25% share in RHB to ADBC’s sister company. including professional ego. To reduce managerial staff and to make better use of an existing sales force • Greater complementary fit in business and revenue lines favoured for Maybank-RHB versus CIMB-RHB will ensure that the former pair could potentially result in lower staff attrition and possible VSS (voluntary separation scheme) costs post-merger. would require the additional staff and expertise from RHB Bank. • As for CIMB-RHB is likely to be overstaffed in the corporate and investment banking segments but Maybank which is aggressively building its corporate and investment banking business both domestically and on a regional scale. namely in high growth spots such as Indonesia and Thailand. Risk of overpaying FIN 664 5 . 12. • Historical lessons have proved that big company does not equate better. market value and market share (loans and deposits). Effect on management due to political issue in the banking industry • It is questionable and wondering why Bank Negara is pushing hard for the RHB merger with the two largest banks in Malaysia as this would lead to foreign exchange outflow and unhealthy monopoly. It has more difficulty sustaining in time of crisis as can be seen in the case of the Lehman Brothers.

don’t forget. If both takeover offers lopped on the table are similar. But pick it must as the board ought to recommend only one offer for shareholders to vote on. This was after Aabar inked a deal to buy a 25% stake in RHB Cap from sister company Abu Dhabi Commercial Bank at a hefty RM10. this is a giant battle among equals. In comparison.which set the valuation bar too high for a merger to happen.Nazri@2005327443 • • • • • • RHB Cap's share price has weakened by about 12% since news of the bigger banks pulling out from a merger emerged. last time it was only three years ago when the market chastised Maybank for paying a steep price (over 4x book) for BII. Mergers can fail for many reasons including a lack of management foresight. Pricing wise is important but it won’t be anywhere as exciting as what ADCB could get from its block on a stand-alone basis. the board of RHB Cap would be in a tough spot to make the choice.or 2.2x of book value but that was a perfect match. But one must be careful not to be carried away. execution risks and so forth. despite having two potential competing bids. CIMB paid 2. If that happens. As for Maybank. 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. Hong Leong's acquisition of EON Cap earlier this year was done at only 1. If this happens. qualitative factors will kick in such as future growth of the merged entity. FIN 664 6 . But not to repeat the unlikely situation. the inability to overcome practical challenges and loss of revenue momentum from a neglect of dayto-day operations. During takeover of Southern Bank in 2006. this is not quite the case here. the last bank takeover in the country.80 a share . In many ways. both banks would be mindful of overpaying. But referring to the RHB Cap. The banks will not pay more than what they value themselves at.4 times book. contrary to market expectations and given the apparent lack of overall synergies. Indeed.25 times the bank's book value . more so as Maybank has been thoroughly revamped and made careful analysis over since. unlike anything Malaysia Inc has ever witnessed and it's hard to shrug off the sense of desperation in the air. Who between the two would dare pay the price for that? So. they are better off walking away from the deal. The corporate sidewalk is littered with examples that the one who walks away with the prize is not always the biggest winner. this is a very close fight.

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