MBSB-Bank Muamalat merger talks aborted

Ahmad Zaini: ‘We should still continue to add to this value regardless of the status that MBSB holds.’

PETALING JAYA: Non-bank financial provider Malaysia Building Society Bhd (MBSB) has failed to strike a merger with Bank Muamalat Malaysia Bhd, its second botched merger attempt in recent times.

MBSB told Bursa Malaysia yesterday that it and the parties involved, namely, DRB-Hicom Bhd and Khazanah Nasional Bhd, have decided to end negotiations for the proposed merger to form the country’s biggest standalone Islamic bank after having failed to agree on the terms.

“After a series of discussions and negotiations, DRB-Hicom, MBSB and Khazanah have not been able to reach an agreement on the terms and conditions of the proposed merger.

“Accordingly, the parties have mutually agreed to end all discussions and not proceed with the proposed merger,” MBSB said in a filing with Bursa.

MBSB president and chief executive officer Datuk Ahmad Zaini Othman said the parties had diligently been working towards formulating a position that would best strengthen the new merged entity, as well as serve the best interest of all shareholders.

“Unfortunately, despite these efforts, we were not able to commonly agree on that position,” he said in a statement.

Banking sources said that the merger talks broke down over issues of control in the combined banking entity.

According to sources, DRB-Hicom was looking at a higher valuation for Bank Muamalat that would have translated to a higher shareholding and control of the merged entity. This apparently did not sit well with MBSB’s major shareholder, the Employees Provident Fund (EPF), which was also seeking to be the controlling shareholder. The EPF owns 65% of MBSB.

Bank Muamalat is 70%-owned by DRB-Hicom, while Malaysia’s sovereign wealth fund Khazanah holds the remaining 30% interest.

Based on earlier talks, the deal was to have been effected via a share swap with no cash involved. Banking sources said when the deal was being crafted, the EPF was to have emerged as the single-largest shareholder in the enlarged entity with a stake of between 35% and 40%, while DRB-Hicom was to hold about 20% and Khazanah around 10%.

Meanwhile, on the bourse, MBSB shares fell 2.76% or four sen to RM1.41 as investors reacted negatively to prospects for the company that has been hit by a hefty loan loss provision due to its kitchen-sinking exercise,

Shares of DRB-Hicom, on the other hand, were up 0.96% or one sen to RM1.05 at yesterday’s close.

Notably, this was the second deal in about a year that had failed to work out for MBSB after a three-way tie-up between CIMB Group Holdings Bhd and RHB Capital Bhd to create Malaysia’s biggest bank by assets had been aborted in January last year.

In addressing MBSB’s plans moving forward, Ahmad Zaini said there was a lot of value in MBSB even though it was not a banking institution.

“Hence, we should still continue to add to this value regardless of the status that MBSB holds.

“Our team had already embarked on revised strategies in the fourth quarter of last year, taking cognizant of changes in the economy. We are also being more prudent in the sectors that we continue to lend and our impairment programme is running into its second year.”

He said emphasis would be placed on the company’s continuous efforts to strengthen its funding programme and build up its capabilities in both business and operations.

An analyst, when contacted, said that the failed merger was short-term negative for MBSB.

“As part of its aspiration to be a full-fledged Islamic bank, MBSB would still be keen on a corporate exercise, but is unlikely to find a partner at least in the next 12-month amid an environment where banks are cost-cutting,” he said.

MBSB, one of the non-conventional banks in the local financial industry, has a long-term plan to graduate from a non-bank to a full-fledged Islamic bank to increase its competitiveness.