Maybank, CIMB risk paying too much for RHB
Published: Jun 1, 2011 2:03 PM | Updated: Jun 1, 2011 2:04 PM
Malayan Banking Bhd and CIMB Group Holdings Bhd risk overpaying for their bid to merge with RHB Capital Bhd, which will result in their return on equity (ROE) and earnings per share (EPS) diluted to a sizeable rights issue, said a research house.
Both Maybank and CIMB have three months to complete the negotiations in their bid to merge with RHB Capital.
Malayan Banking Bhd and CIMB Group Holdings Bhd risk overpaying for their bid to merge with RHB Capital Bhd, which will result in their return on equity (ROE) and earnings per share (EPS) diluted to a sizeable rights issue, said a research house.
Assuming that the acquisition price for RHB Capital is between RM10.20 and RM10.60, with the median pricing at RM10.40 per share, the acquisition of RHB Capital would be EPS and ROE dilutive for both Maybank and CIMB, said OSK Research.
This is following the fact that they would have to undergo a relatively sizeable one for-three rights issue to restore their core equity ratio, which would be impacted by roughly RM12 billion in goodwill arising from the acquisition.
"Without a rights issue or issuance of new shares, we estimate that CIMB's core equity ratio will decline, from 11.4 percent, to less than one percent, while that of Maybank's will decline, from 11.6 percent to 4.7 percent," said the research house in a note today.
It was neutral on both CIMB and Maybank's bid for RHB Capital following the risk of overpaying due to two competing bidders.
On the flip side, the acquisition is expected to only enhance the EPS and value for an acquisition pricing below RM9.60, said OSK Research.
At midday, RHB Cap's share rose 67 sen, or 7.3 percent, to RM9.89.
Three months to complete negotiations
In a filing to Bursa Malaysia today, RHB Capital said that it has been formally notified by CIMB and Maybank, respectively, that the central bank has no objection in principle for both banking groups to commence preliminary negotiations.
The proposed negotiations will be deliberated by the board and further announcements on any development would be made in due course, said RHB Capital.
Both Maybank and CIMB have three months to complete the negotiations.
Meanwhile, MIDF Research said the proposed merger would probably signal further consolidation in the banking sector, especially, smaller banks like Affin, Alliance and AmBank.
"Consolidation of banking groups in Malaysia will elevate the competencies of local banks under more challenging environment as well as reduce the intensiveness of competition which will drive down margins significantly," it said.
Eventually market forces might assert pressure on the three smaller banks to look into the possibility of a merger and acquisition, it added.
- Bernama
Assuming that the acquisition price for RHB Capital is between RM10.20 and RM10.60, with the median pricing at RM10.40 per share, the acquisition of RHB Capital would be EPS and ROE dilutive for both Maybank and CIMB, said OSK Research.
This is following the fact that they would have to undergo a relatively sizeable one for-three rights issue to restore their core equity ratio, which would be impacted by roughly RM12 billion in goodwill arising from the acquisition.
"Without a rights issue or issuance of new shares, we estimate that CIMB's core equity ratio will decline, from 11.4 percent, to less than one percent, while that of Maybank's will decline, from 11.6 percent to 4.7 percent," said the research house in a note today.
It was neutral on both CIMB and Maybank's bid for RHB Capital following the risk of overpaying due to two competing bidders.
On the flip side, the acquisition is expected to only enhance the EPS and value for an acquisition pricing below RM9.60, said OSK Research.
At midday, RHB Cap's share rose 67 sen, or 7.3 percent, to RM9.89.
Three months to complete negotiations
In a filing to Bursa Malaysia today, RHB Capital said that it has been formally notified by CIMB and Maybank, respectively, that the central bank has no objection in principle for both banking groups to commence preliminary negotiations.
The proposed negotiations will be deliberated by the board and further announcements on any development would be made in due course, said RHB Capital.
Both Maybank and CIMB have three months to complete the negotiations.
Meanwhile, MIDF Research said the proposed merger would probably signal further consolidation in the banking sector, especially, smaller banks like Affin, Alliance and AmBank.
"Consolidation of banking groups in Malaysia will elevate the competencies of local banks under more challenging environment as well as reduce the intensiveness of competition which will drive down margins significantly," it said.
Eventually market forces might assert pressure on the three smaller banks to look into the possibility of a merger and acquisition, it added.
- Bernama
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