Terms for the deal, announced in October, no longer make sense as the industry outlook worsens, said the people, who asked not to be named because deliberations are private. An announcement could come as soon as this week, one person said. The proposed combination also included the acquisition of smaller lender Malaysia Building Society Bhd. (MBS)
The merger would have been Malaysia’s largest ever and was the biggest Asian M&A transaction announced in the fourth quarter, data compiled by Bloomberg show. CIMB and RHB had weighed renegotiating terms of the deal, valued at 72.5 billion ringgit
($20.2 billion) when it was unveiled, people familiar with the matter said last week.
The deal “is better off than on,” Geoffrey Ng, a Kuala Lumpur-based adviser for strategic investments at Fortress Capital Asset Management Sdn., which oversees about $280 million, said by phone. “The overlaps in terms of operation and market coverage would have been too much. The redundancy that would have occurred would have been quite painful.”
CIMB Rallies
CIMB shares surged 14.3 percent, the most since February 2001, to close at 5.92 ringgit in Kuala Lumpur. RHB advanced 0.9 percent, while Malaysia Building Society slumped 5.9 percent. The three banks have a combined market value of $21 billion.The Edge newspaper reported the plans to scrap the deal earlier today, citing unidentified people.
Effendy Shahul Hamid, chief marketing and communications officer at CIMB, declined to comment when contacted by phone. Spokesmen for Malaysia Building Society couldn’t immediately be reached.
“There is no further development in relation to the merger at this juncture,” RHB said in an e-mailed statement. “Further updates will be made should there be any development.”
Reverse Merger
The proposed transaction was structured as a reverse merger, with smaller RHB to issue shares to acquire CIMB, Malaysia’s largest bank. That method was seen as a way to overcome potential opposition from RHB’s second-largest shareholder, Aabar Investments PJSC, which paid 10.80 ringgit a share when it bought its stake in 2011. RHB closed today at 7.80 ringgit.CIMB shares had fallen 24 percent through the end of last week since the deal was announced, double RHB’s drop. That disparity made the merger less attractive to RHB shareholders. Adding cash to woo RHB investors wouldn’t have been “palatable” to CIMB, Desmond Chng, an analyst at Maybank Kim Eng, wrote in a report yesterday.
One blow to the deal came in late October, when Malaysia’s stock exchange ruled that pension manager Employees Provident Fund couldn’t vote on it. The fund is RHB’s largest investor with a 40.9 percent holding, and also owns stakes in CIMB and Malaysia Building, data compiled by Bloomberg show.
Profit Squeeze
CIMB said in November its third-quarter profit fell 16 percent to 890 million ringgit, hurt by higher loan impairments in Indonesia. RHB’s net income for the period slipped 2.5 percent to 545 million ringgit.Winson Ng, CIMB’s banking analyst, in December recommended investors to be “underweight” on bank stocks. He said in a research report that “weak loan momentum” and narrower margins would hurt revenue growth.
The deteriorating economic outlook augurs poorly for loan growth and the banking industry. Last week, Barclays Plc cut its forecast for Malaysia’s 2015 economic growth to 4.5 percent from 5.5 percent amid a slump in commodity prices and the ringgit.
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