KUALA LUMPUR (Sept 9): It is unlikely for RHB Capital Bhd to be priced at a significant premium if the Employees Provident Fund (EPF) is allowed to vote in the proposed three-way merger between CIMB Group Holdings Bhd, RHB Cap and Malaysia Building Society Bhd (MBSB), according to a Nomura report.

EPF is the largest shareholder of RHBCap with a 41.5% stake. It is a related party as it is also a major shareholder of CIMB, with a 14.46% interest.

In a note yesterday, Nomura said that if EPF were allowed to vote, RHBCap would be priced possibly below Aabar Investment Pte Ltd’s cost of RM10.80 and not the ‘rumoured’ asking price of RM11.80.

If that was the case, Nomura said the merger proposal would be favorable to CIMB stakeholders.

“After all, CIMB needs 75% approval from its stakeholders including foreign investors, which owns 33% of the bank.”

Nomura noted that the only concern was whether the government related stakeholders would be willing to accept deep staff cuts to reduce the overlaps between the banks. “But given CIMB’s successful track record in past restructuring exercises, the cuts will be non-disruptive.”

Alternatively, if EPF was not allowed to vote, “The deal may not go through. Regardless of whether RHBCap or CIMB is the acquirer, the merger cannot go through especially if Aabar, which controls 21.43% of RHBCap, insists on RM11.80 for RHBCap. CIMB stakeholders will reject RHB Cap at RM11.80,” Nomura added.

It said, “Looking at the media reports, one can deduce that the shape and form of any offer on the table is predicated upon whether EPF can vote in the merger.”

It has been reported that RHBCap’s board would meet this week and EPF is expected to get the nod from the board to vote in the proposed merger. Meanwhile, the three-month exclusivity clause for CIMB to negotiate with the two banks expires on Oct 8.

Nomura has a “buy” rating on CIMB for investors with a six to 12 months investment horizon as “it will take some time before we see positive synergies arising from the merger.”

It noted that CIMB would probably remain well supported until the end of the month to fix the pricing for the share swap.

Nomura has a “neutral” call on RHBCap with a target price of RM9. “Should the merger fall through, the stock price will probably pullback close to RM8.20 to RM8.50 – the level before the proposed merger was announced,” it opined.

At 12:19pm, CIMB was trading 0.28% higher at RM7.27, with 713,000 shares done while RHBC has dropped 0.44% to RM9.06, with 1.12 million shares traded.