BURSA MALAYSIA officials are expected to meet on Oct 9 to decide whether the Employees Provident Fund (EPF) can vote in the proposed mega merger of CIMB Group Holdings Bhd, RHB Capital Bhd and Malaysia Building Society Bhd (MBSB), sources say.
Ironically, Oct 9 is just a day after the 90-day exclusivity period for the three parties to come up with a deal expires.
This prompts speculation that the exclusivity period may be extended, especially since there is still no merger agreement in sight. Sources contacted by The Edge, however, say a decision to extend the exclusivity period has not been made.
“A request to extend it has been submitted to the board of RHB by CIMB. But that is for procedural purposes just in case an extension is needed.
“The parties still cannot agree on structure or price yet. Everything seems to be at a standstill ... everybody is waiting for somebody to make a move, but so far, no one is doing that yet. The structure and price have been submitted to the RHB board by CIMB, but no decision has been made or agreed on,” says a source familiar with the matter.
There is an automatic extension of the exclusivity period upon submissions being made to Bank Negara Malaysia by the parties on the proposed merger. However, even if they were to let the 90-day period lapse, the parties can still negotiate on a non-exclusive basis as Bank Negara has given them a six-month period from July 10 to hold merger talks.
Meanwhile, RHB, CIMB and MBSB are each scheduled to hold board meetings on Oct 7.
“There will be an announcement on Oct 8 and it can go three ways — the deal will either be on, off, or the exclusivity period extended,” the source adds.
It is learnt that each of the three parties received a letter from Bursa last Thursday, asking them matters relating to the EPF’s role in the merger.
In the letter, Bursa sought board opinion on whether the EPF was privy to the merger even before the three parties announced on July 10 the proposal to create the country’s biggest banking group and a mega Islamic bank.
“Bursa also wanted board opinion on whether the EPF could have had influence on the other directors on the deal and whether the proposed deal benefits only the major shareholders and not the minorities,” a source familiar with the matter tells The Edge.
It is understood that RHB and MBSB plan to revert to Bursa by Oct 7.
The EPF is keen on voting in any eventual deal to protect its investments. However, certain Bursa listing rules prevent it from being able to vote, as it is a substantial shareholder in all three entities.
Both RHB and MBSB had previously, at the EPF’s behest, written to Bursa to put forward the provident fund’s request for a waiver from the listing rules.
“Bursa is very concerned as to whether the EPF has any undue influence on the deal and whether it has prior knowledge of the deal. While the EPF itself claims it doesn’t, Bursa wants the board to have an opinion on that. The previous letters [by RHB and MBSB to Bursa] did not provide an opinion,” one of the sources told The Edge two weeks ago.
The EPF is the single largest shareholder in RHB and MBSB with a 41.5% and 64.6% stake respectively, and holds 14.6% equity interest in CIMB.
According to sources, the proposed merger scheme being considered is for CIMB to sell its entire banking business to RHB and for the deal to be paid by an issuance of new RHB shares.
Under that scenario, the EPF’s vote is crucial because as the buyer of the assets and liabilities of another banking group, RHB only needs a 50%+1 share approval for the deal compared with the selling party, which would need 75% of the votes.
The next step of the merger would involve their respective Islamic banking subsidiaries merging with MBSB, with CIMB Islamic Bank Bhd becoming the vehicle for the enlarged Islamic operations.
One of the sources says it should not really matter if Bursa rules that the EPF cannot vote at its Oct 9 meeting. “Bursa’s meeting is irrelevant to us … We have to focus on this deal rather than how Bursa will vote. We need to agree on a structure and price first.”
Others, however, say if the EPF cannot vote, there is less chance of a deal going through in its proposed form. Should it abstain from voting, RHB’s other substantial shareholder — Aabar Investments PJS — will hold the trump card.
With its 21.2% stake in RHB, Aabar will hold a 36.2% vote for or against the acquisition of CIMB’s assets and liabilities if the EPF abstained from voting. Apart from the Middle Eastern investor, OSK Holdings Bhd has a 9.9% stake in RHB and would hold an important vote as well.
It is no secret that Aabar could be a stumbling block to any merger, given that it is seeking a high price of RM12 per share for its shares in RHB.
This article first appeared in The Edge Malaysia Weekly, on October 06 - 12, 2014.