Details of this year‟s mega-deal to create the nation‟s largest banking group were revealed yesterday,
which will essentially see RHB Capital (RHB) being the acquirer
and eventual listed entity, and the subsequent de-listings of CIMB
Group (CIMB) and Malaysia Building Society (MBSB) post- asset and
liability disposals. Part of the exercise will involve CIMB
Islamic Bank acquiring the assets and liabilities of both RHB
Islamic Bank and MBSB to create the mega Islamic bank as announced
three months ago. A share swap on the basis of 1 RHB share for every
1.38 CIMB share held will then be undertaken. While we feel the implied
valuation of CIMB Group is a little underwhelming at RM7.27 or a 1.7x
price-to-book ratio, this particular mode of transaction is most lik
ely the best solution to avoid potential shareholder impasses. We
are positive on the deal, but our call is lowered to Neutral
however, with the target price capped at RM7.27. Coverage on CIMB will
be on-going until completion of the deal.
How? A share swap which values CIMB at RM7.27 per share (1.7x priceto-book @ 30/6/14), RHB at RM10.03 per share (1.44x) and MBSB at RM2.82 per share (1.91x). CIMB shareholders will own 70% of the merged entity, RHB the balance.
Why? Group Chairman Dato Sri Nazir Razak highlighted 5 key reasons why this deal was necessary, 1) it achieves the scale necessary for the enlarged group to compete in the ASEAN community space, while also cementing its position as Top 5 within the region, 2) it achieves economies of scales with synergistic benefits, 3) it is a compelling financial proposition for CIMB Group shareholders as the deal is EPS accretive though ROE dilutive in the near term higher, 4) it allows for a rebalancing of its geographical portfolio and to tap on each entity‟s core strengths, and 5) it creates a new growth engine in Islamic finance
What now? Bank Negara Malaysia approval has been sought, after which due diligence will be undertaken. A definitive Sale and Purchase Agreement will be signed in early 2015 after which consent of other regulators and shareholders will be sought. Full completion of the deal is expected mid-2015. On the issue of the Employees Provident Fund being allowed to vote, management anticipates this to not be a deal-breaker if otherwise given the value proposition on-hand.
Source: PublicInvest Research - 10 Oct 2014
How? A share swap which values CIMB at RM7.27 per share (1.7x priceto-book @ 30/6/14), RHB at RM10.03 per share (1.44x) and MBSB at RM2.82 per share (1.91x). CIMB shareholders will own 70% of the merged entity, RHB the balance.
Why? Group Chairman Dato Sri Nazir Razak highlighted 5 key reasons why this deal was necessary, 1) it achieves the scale necessary for the enlarged group to compete in the ASEAN community space, while also cementing its position as Top 5 within the region, 2) it achieves economies of scales with synergistic benefits, 3) it is a compelling financial proposition for CIMB Group shareholders as the deal is EPS accretive though ROE dilutive in the near term higher, 4) it allows for a rebalancing of its geographical portfolio and to tap on each entity‟s core strengths, and 5) it creates a new growth engine in Islamic finance
What now? Bank Negara Malaysia approval has been sought, after which due diligence will be undertaken. A definitive Sale and Purchase Agreement will be signed in early 2015 after which consent of other regulators and shareholders will be sought. Full completion of the deal is expected mid-2015. On the issue of the Employees Provident Fund being allowed to vote, management anticipates this to not be a deal-breaker if otherwise given the value proposition on-hand.
Source: PublicInvest Research - 10 Oct 2014
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