The ups and downs of M&As

BANKING consolidation in corporate Malaysia has not been smooth sailing. While there have been successful merger and acquisition (M&A) activities, there have also been unsuccessful attempts to consolidate.

The notable fallout involved a three-way merger between CIMB Group Holdings Bhd, RHB Capital Bhd (now RHB Bank Bhd) and Malaysia Building Society Bhd (MBSB) in 2015 to create the biggest banking group in the country and one of the largest banking entities in South-East Asia. With combined assets estimated at RM613bil, the merged entity would have overtaken Malayan Banking Bhd (Maybank) as the largest banking group in the country.

The deal fell through because of market conditions amid falling crude oil prices, as it was no longer seen as cost-effective.

MBSB was dealt with another blow when its proposed merger with Bank Muamalat Malaysia Bhd was aborted due to disagreements over valuations and control. The non-bank lender received the green light from Bank Negara at the end of last year to start negotiations on a proposed merger with Asian Finance Bank Bhd (AFB).

MBSB will commence negotiations with AFB’s shareholders, namely, Qatar Islamic Bank, RUSB Investment Bank Inc, Tadhamon International Islamic Bank and Financial Assets Bahrain WLL. The merger exercise, according to analysts, is likely to be a deal that involves cash and shares.

Prior to the approval given by the central bank for RHB Bank and AMMB Holdings Bhd to begin merger discussions, both parties had in 2011 entered into M&A talks when Hong Leong Bank Bhd and EON Capital Bhd were going through a merger. The deal was called off in 2015 due to the weak operating environment.

Recall that RHBCap was a takeover target of CIMB and Maybank in a deal worth RM20bil about six years ago, but the deal fell through because the two local banks were reported to have put in the same price for the block of shares of Abu Dhabi Commercial Bank PJSC.

This led to Aabar Investments PJS buying that block from its sister company, Abu Dhabi Commercial Bank.

Hong Leong Bank acquired EON Bank for about RM5.1bil, valuing it at 1.4 times price-to-book in 2010. The M&A was not an easy process as there was a shareholder tussle for control between EON Bank’s major shareholder, Hong Kong-based Primus Pacific Partners, and another major shareholder who wanted to sell.

In 2006, CIMB took over Southern Bank Bhd after a long-drawn boardroom battle. The founder of Southern Bank Tan Sri Tan Teong Hean was a reluctant seller. He relented after failing to get the support of other shareholders of the bank. The merger was completed at a price to book 1.9 times before provisioning.