Thursday 28 Mar 2024
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KUALA LUMPUR: CIMB Group Holdings Bhd (fundamental score: 1.35; valuation score: 2.1) was the top gainer on Bursa Malaysia yesterday after The Edge Financial Daily reported that its proposed mega merger with RHB Capital Bhd (RHBCap) and Malaysia Building Society Bhd (MBSB) is off.

CIMB rose by 74 sen or 14.29% to close at RM5.92 — off an intraday high of RM5.94 — giving it a market capitalisation of RM49.78 billion.

Likewise, RHBCap (fundamental: 1.5; valuation: 2.1) rose seven sen, or 0.91% to RM7.80 with a market capitalisation of RM20.09 billion. In comparison, the FBM KLCI was up by 13.82 points or 0.8% to close at 1,748.9 points.

However, the upward trend was not felt by MBSB (fundamental: 1.2; valuation: 1.6) as its shares fell 13 sen, or 5.94% to RM2.06, giving it a market capitalisation of RM5.66 billion.

Other banking groups such as Malayan Banking Bhd closed up four sen, or 0.47% to RM8.62, Public Bank Bhd closed down six sen, or 0.34% to RM17.46 while Hong Leong Bank Bhd shares remained unchanged at RM13.98.

The Edge Financial Daily, quoting sources, reported yesterday that an official announcement on the mega merger being called off was expected before the end of the week.

“The respective boards are supposed to meet on Wednesday [today] when it will be formally expressed that the deal is off,” said the report.

A dealer with a local investment bank said the positive share price movements of CIMB and RHBCap yesterday reflected investors’ preference for the merger to be called off.

“When CIMB and RHB announced the mega merger, there was a lot of uncertainty among investors, and now that there is news that the deal may be called off, there could be some relief among investors as they are no longer having doubts on the sustainability of the deal. However, the news may not go down well with MBSB investors who were expecting to cash in on the deal,” he told The Edge Financial Daily.

The Edge weekly on Jan 10 reported that there was a strong possibility the merger could be called off due to several factors — that the economic landscape has become tougher, and the fact that RHBCap is seeking a revision of the terms after the substantial fall in CIMB’s share price since the structure of the merger was first announced on Oct 9 last year.

It cited sources as saying that RHBCap now wants a cash portion to be included in its merger with CIMB.

Fitch Ratings, in an October 2014 report, said that MBSB would cause a potential asset quality weakness in the proposed merger due to its higher-risk profile. The ratings agency also stated that if the proposed merger were to go through, cost synergies were likely to materialise only in the long term.

To recap, CIMB, RHBCap and MBSB announced that they had entered into proposed merger talks in July last year to form a mega Islamic bank on Oct 9, 2014. The three banking groups announced that discussions had been concluded and that the proposed merger had been structured in such a way that RHBCap would acquire CIMB’s assets and liabilities via a share swap of one RHBCap share for 1.38 CIMB shares. This was based on a benchmark price of RM7.27 per CIMB share and RM10.03 per RHBCap share, translating into a price-to-book value (P/BV) ratio of 1.7 times and 1.44 times for CIMB and RHBCap respectively.

Their Islamic operations, which would then come under CIMB Islamic Bank Bhd, would acquire MBSB to form a mega Islamic bank at a price of RM7.77 billion or RM2.82 per share. This translates into a P/BV of 1.32 times, and MBSB shareholders would have a choice to either accept cash or new shares in the unlisted CIMB Islamic group.

(Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. A score of 0 means weak fundamentals and a score of 3 means strong fundamentals. Meanwhile, the valuation score determines if a stock is attractively valued or not, calculated based on historical numbers. A score of 0 means valuations are not attractive, while a score of 3 means valuations are attractive.)

 

This article first appeared in The Edge Financial Daily, on January 14, 2015.

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