PETALING JAYA: The EON Capital Bhd (EON Cap) board has not yet made a decision on whether to put before shareholders the proposed purchase of its assets and liabilities by Hong Leong Bank Bhd (HLB) for RM4.92bil cash, sources said.
They added that the board was not obliged to put the proposal to shareholders if it felt that the offer was too low. However, it was possible for other shareholders to requisition an EGM to put the matter before shareholders.
In its offer for the assets and liabilities of EON Cap Thursday, HLB had given the EON Bank board seven days to confirm the tabling of the offer for consideration and approval by the shareholders.
It said if it did not receive any confirmation within the seven days, the offer would lapse.
Other sources said Primus Pacific Partners (HK) Ltd, which holds a fifth of EON Cap, is understandably not interested in the all-cash offer which would crystallise its losses.
Primus had bought the shares at RM9.55 a share in early 2008 which is more than a third above HLB’s offer price of RM7.10 a share.
Meanwhile, analysts are divided over whether the offer, which works to RM7.10 per EON Cap share, is fair and whether the proposed acquisition would go through.
OSK Research believes the four non-strategic shareholders of EON Cap – Tan Sri Tiong Hiew King, Rin Kei Mei, Khazanah Nasional Bhd and the Employees Provident Fund – would eventually agree to HLB’s offer.
This was because there was no guarantee that more attractive counter-bids would materialise despite the recent announcement by EON Cap seeking Bank Negara approval to start negotiations with multiple parties, it said.
The four shareholders collectively hold 53.6% equity in EON Cap, which is more than sufficient for HLB to see the deal through via the assets and liabilities method, which only requires the approval of 50% of EON Cap’s shareholders plus one share.
“In addition, the offer from HLB may lapse if the central bank delays in its approval for EON Cap to start negotiating with other third parties,” OSK said.
OSK noted that although the offer price of RM7.10 per share was slightly lower than its anticipated 1.51 times price to book value (PBV), or RM7.60 per share, it was fair given EON Cap’s sub-par industry return on equity (ROE), loans growth and asset quality.
The offer price essentially values EON Cap at 1.41 times PBV based on EON Cap’s book value of RM5.03 per share as at end-September 2009, which analysts say is the lower end of the recently transacted medium-sized domestic banking merger and acquisition (M&A) valuation range of 1.3 times to 1.8 times PBV.
MIDF Research believes that it is highly likely for the deal to go through if there are no other bidders based on the cost of the major shareholders, with the exception of Primus which was at a hefty RM9.55 per share.
Although HLB’s offer is lower than general expectations, it is believed that the price is still higher than the Rin and Tiong groups’ cost of around RM2 per share, and Khazanah and EPF’s cost of below RM6 per share.
“What remains to be seen is whether there will be competing bids within the seven-day period during which the EON Cap board is required to give a confirmation to HLB,” MIDF said.
AmResearch does not expect a competing bidder for EON Cap to emerge in the short term.
“We believe EON Cap’s shareholders will be better off taking the current all-cash offer from HLB and considering alternative investments elsewhere,” it said.
AmResearch, which pegged EON Cap’s fair franchise value at RM5.50 per share without a takeover scenario based on PBV of 1.0 times and derived from estimated ROE of 9.7% for financial year ending Dec 31, 2010 (FY10), strongly believes the offer from HLB is fair and reasonable.
“Based on our estimates, to take our fair franchise value for EON Cap to RM7.10, EON Cap’s ROE would need to be uplifted to 11% at least, a scenario that is expected to be realised only beyond FY11 – a few years down the road,” it said.
TA Securities, however, expects to see some resistance coming from some of EON Cap’s major shareholders (in particular Primus) due to the sharp discount in PBV valuation.
RHB Research concurred.
“Acceptance from EON Cap is not guaranteed as Primus is likely to object to the deal, given the cheap pricing.
“Even if shareholders decided to call for an EGM, Khazanah and EPF’s decisions will be critical to achieve the required 50% plus one share approval,” it said.
RHB added that other suitors might make a better offer within the next seven days.
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