five months of negotiating, CIMB Group's Bumiputra-Commerce Holding
Berhad and Southern Bank say they will merge.
Group’s Bumiputra-Commerce Holdings Bhd. (BCHB) upped its
offer for Southern Bank Bhd. to M$6.7 billion ($1.8 billion) on
Wednesday (March 15), after months of heated negotiations over
Malaysia’s largest banking takeover. BCHB, the
nation’s second-largest lender sweetened the deal to M$4.30
per share, up about 4% from an initial hostile offer of M$4.15.
Group and Southern Bank, which is the nation’s
second-smallest lender, jointly announced the proposed merger, saying
they now have unanimous support from the boards of directors of both
BCHB and Southern Bank, "as well as endorsement from substantial
shareholders of Southern Bank" for the proposed acquisition by BCHB
– alluding to the five-month old negotiating struggle.
International Merchant Bankers Bhd and JPMorgan are the advisors for
CIMB Group's BCHB, while Goldman Sachs is the advisor for Southern
Bank. The specifics of the proposal, which needs approval from Bank
Negara Malaysia, the central bank, is that BCHB will pay M$4.30 per
Southern Bank share and M$2.56 per warrant. Southern Bank shareholders
will also receive a gross dividend of 5 sen per share and have a choice
of taking the payout in cash or in a combination of cash and unsecured
In addition, Southern Bank will set
aside M$50 million for loyalty and severance payments to its directors
and staff. The voluntary general offer is expected to be completed in
late May. Then, BCHB will merge Southern with its existing business and
eventually delist the bank.
According to analysts,
the deal has been valued at roughly 1.92 times book value, but it rises
to 2.1 if an upfront loan loss provision of M$300 million is factored
into the equation. By comparison, Malaysia's Public Bank paid 2.5 times
book value to buy Hong Kong's Asia Commercial Bank last month, although
valuations in Hong Kong tend to be much higher.
is expected to pay for much of the acquisition using its own cash,
however some of it may be debt-funded. Analysts say BCHB could raise up
to M$4 billion in hybrid or senior debt to help fund the
offer. “This proposed merger and acquisition is
strategic and consistent with our priority agenda of transforming our
consumer banking franchise,” says CIMB Group Chief Executive
Nazir Razak of the deal. “It augurs well for the future as it
gives us the lead in the long anticipated next round of banking
consolidation, positioning the BCHB Group even stronger in terms of
diversity and scale with total assets increasing from M$121 billion to
By comparison Malayan
Banking Bhd - the country's number one lender - has M$192 billion of
assets. The acquisition will bolster BCHB Group’s consumer
banking, given that Southern Bank boasts a client list of wealthy
individuals and small businesses, which will help it compete against
Consolidate or die
sector has been attempting to consolidate ahead of next
year’s industry liberalisation when foreign banks will be
permitted to establish a greater presence locally. It shrunk from 54
banks prior to the Asian financial crisis to 10 by 2000, but since
then, marriages have been hard to negotiate. This deal puts the number
of banks at nine.
But pair-ups are necessary for
the banks to survive, as next year, in order to fulfil World Trade
Organization commitments, Malaysia will permit the foreign banks
operating in the country, such as Citigroup and HSBC, to set up as many
as four additional branches each.
Bank Chief Executive Director Tan Teong Hean, who was one of the
detractors of the original offer, said at the press conference
announcing the deal: "Today, we are at the centre of the largest, most
public takeover in Malaysian history with ripples that will be felt in
corporate Malaysia. Developments here will trigger a second wave of
consolidation in the financial sector as the industry prepares for a
new age of fierce global competition when Malaysia opens its doors to
further market liberalisation."
Tan has been offered
an executive advisory role for two years at BCHB to help with the
integration but he has yet to accept the offer, Nazir comments. Market
rumours circulated in September that CIMB wanted to make an offer for
Southern Bank. In October, it received approval from the central bank
to make an offer only to find a cool reception: While a major Southern
Bank shareholder group, the Selangor royal family, favoured the merger,
Southern Bank's chief executive, who is also a substantial shareholder
and arguably the architect of the bank’s recent growth, Tan,
argued at the time that Southern Bank should remain independent.
formal offer was made on February 13, with CIMB willing to pay M$6.35
billion ($1.7 billion) for Southern Bank. It made two separate offers:
One was a direct offer of M$4.15 to all Southern Bank shareholders. The
second was to Southern Bank’s board of directors –
proposing M$4.08 a share in cash for the operation, which valued the
lender at M$6.17 billion.
The next day, Southern
Bank said its board had unanimously rejected the CIMB offer because it
"fundamentally undervalues" the bank. It also claimed the offer didn't
comply with the country's takeover and merger regulations and it
rejected a call to hold a shareholders' meeting to vote for the offer.
that point, it looked like the deal was dead. But mergers are needed in
the sector to survive.
According to Bloomberg, BCHB
shares, which have risen 7.9% this year, rose 15 sen, or 2.5%, to
M$6.15 before they were halted from trading on March 13 ahead of the
merger announcement. It was the stock's biggest gain since Feb. 6.
the same day, Southern shares added 4 sen, or 1%, to M$4.20 before
their trading was suspended.