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The pension fund, which holds 10.7 per cent of EON Capital, may support the bid if it thinks the price offered is attractive
The Employees Provident Fund (EPF) may back a deal to merge the country's sixth and seventh biggest banking groups if it thinks the price offered is attractive.
The pension fund holds 10.7 per cent of EON Capital Bhd (EONCap), which is being eyed for a takeover by Hong Leong Bank Bhd.
Hong Leong already has the consent of Bank Negara Malaysia to talk to Rin Kei Mei and the Tiong family about buying their shares. Rin and the Tiong family hold about 32 per cent of EONCap.
As Khazanah Nasional Bhd, the state investment arm holding a tenth of EONCap, is said to support the deal, the EPF may also agree.
"If the price is right, we will consider selling," said a source close to the EPF. He declined to be named as he was not authorised to speak to the media.
The EPF also holds a total of 10.86 per cent in Hong Leong as at August 28, according to the bank's latest annual report.
Hong Leong is believed to have informed the board of EONCap about its intention to start formal talks that could lead to the creation of the country's fourth biggest bank.
Hong Leong, now the sixth largest bank by assets, is said to have asked for the regulator's approval to begin discussions with the board of its smaller rival.
Once the central bank gives its nod, the board of EONCap will have to decide if it wants to talk and subsequently present any potential proposal from Hong Leong to shareholders.
Primus Pacific Partners Ltd, one of EONCap's major shareholders seen as the only resistance to the deal, may vote against talking to Hong Leong. Primus is said to have control of EONCap's seven-member board, industry sources said.
Primus is represented on the board by Ng Wing Fai, managing director and founding partner of the Hong Kong-based investment fund. Two independent directors, Hong Kong-based banker Rodney Ward and Malaysian Yeo Kar Peng, were brought onto EONCap's board by Ng and are believed to support Primus.
Also on the board are key shareholders Rin and Tan Sri Tiong Ik King.
EONCap chairman Tan Sri Syed Anwar Jamalullail and another independent director, Datuk Dr Mohd Shahari Ahmad Jabar, are seen as the neutral parties.
The institutional investors of EONCap - Khazanah and the EPF - have no representatives on the board.
Tuesday December 29, 2009 Pricing key in takeover bid of EON Cap By TEE LIN SAY
M&A talks between its major shareholders and HLBB begin
PETALING JAYA: Pricing will be key in determining if Hong Leong Bank Bhd’s (HLBB) takeover bid of EON Capital Bhd (EON Cap) will be successful as negotiations begin between HLBB and the fragmented group of EON Cap’s major shareholders.
Analysts believe private equity firm, Primus Pacific Partners, which holds a 20.2% stake in EON Cap, will be unwilling to sell its existing stake if the price offered is cheap, as it has been actively involved in the transformation of EON Cap.
Back in February 2008, Primus paid RM9.55 per share for EON Cap, or a 41% premium to the current price.
At RM9.55, it is at 2.1 times (x) price-to-book value (P/BV).
Two major shareholders of EON Cap – Singaporean Rin Kei Mei through Kualapura Sdn Bhd and Lintang Emas Sdn Bhd (15.4%), and the Tiong group through RH Development Sdn Bhd (16.3%), got their stakes at the RM2 level.
Analysts believe that Tiong, Rin and Khazanah Nasional Bhd, which holds a 10% stake, may be the main factors driving the potential merger and acquisition (M&A) of EON Cap.
“I don’t think HLBB will pay more than RM6 for Rin and Tiong’s stake. In Primus’ case, it will likely have to settle for a lower price. There is no compelling reason to pay a higher price for EON Cap. It may be even better for Primus to swap for HLBB shares for better future prospects,” said a source.
AmResearch opines that the acquisition P/BV ratio for EON Cap is unlikely to be above 1.3x to 1.4x.
“This is due to HLBB’s robust value creation culture. In the past HLBB had demonstrated that it would prefer to expand organically rather than pay a significant premium for an acquisition. There is no compelling thesis for HLBB to pay more this that for a target franchise in the domestic market where return on asset is only 0.8%,” AmResearch said.
Kenanga Research also believes HLBB’s offer may fall into the range of 1.3x to1.4x book value.
Its M&A valuation targets are based on discounts in two recent acquisitions – Australia and New Zealand Banking Group Ltd (ANZ), which acquired its stake in AMMB at 1.7x (BV) and Abu Dhabi Commercial Bank, which acquired its stake in RHB Capital at 1.7x P/BV before the global financial crisis.
However, RHB Research believes Primus may not be willing to sell the stake at its investment cost, especially when the transformation at EON Cap is already gaining momentum and reflected in the more consistent and elevated earnings of the banking group. To entice Primus to sell, RHB Research said HLBB would likely have to offer a decent return to Primus, that is at a price higher than its entry cost.
“Based on recent M&A pricing, it could be in the range of 2.3x to 2.5x or RM10.60 to RM11.60,” RHB Research said.
A merger between HLBB and EON Cap will make HLBB the fourth largest local bank, up two places from sixth, overtaking RHB Capital Bhd and AMMB Holdings Bhd.
In the Malaysian banking landscape, HLBB has the strongest capital ratio and is the second best bank in terms of asset quality.
In the case of EON Cap, it has a niche in the hire purchase and small and medium-scale enterprise segments. This will complement HLBB’s relatively weaker presence in these segments.
Hong Leong Bank is said to have asked for the regulator's approval to begin discussions with the board of its smaller rival
The board of EON Capital Bhd (EONCap) (5266), the seventh biggest among nine local banks, is expected to meet tomorrow to decide if it wants to be engaged in a takeover talk with Hong Leong Bank Bhd (HLB), sources said.
HLB, currently the sixth largest by assets, already has Bank Negara Malaysia's nod to talk to certain EONCap shareholders and is said to have asked for the regulator's approval to begin discussions with the board of its smaller rival.
EONCap's seven-member board must now decide on a response because it will also need the central bank's approval if it wants to talk to HLB, industry sources said.
Under local banking laws, both parties are required to secure the regulator's consent before any merger or takeover talks can start.
Price will be the key factor as to whether a deal can be sealed. HLB, controlled by shrewd investor Tan Sri Quek Leng Chan, is not known to overpay in deals. Shares of EONCap have gained 2.4 per cent in recent weeks to close at RM6.74 after the takeover news surfaced.
Primus Pacific Partners Ltd, EONCap's major shareholder with a 20.2 per cent stake, is, however, expected to hold out due to its high investment cost of RM9.55 per share.
"Especially when it (Primus) had played a main role in attempting to transform EON Bank via a fresh management team and a rebranding exercise," a source said.
Primus can potentially block the deal by voting against the decision to discuss with HLB in EONCap's board meeting tomorrow.
Yet, sources said the Hong Kong-based fund may have to let HLB present its offer and allow shareholders to decide.
Thursday December 31, 2009 EON Cap may decide today
By ELAINE ANG
PETALING JAYA: The EON Capital Bhd (EON Cap) board meeting, which is speculated to take place today, could be a long-drawn affair as its seven members deliberate on whether the banking group will begin acquisition talks with Hong Leong Bank Bhd (HLB) or otherwise.
“The meeting could make or break the deal,” an analyst said.
He opines that there is a high possibility the board may agree to acquisition talks with HLB.
This is because it is believed that most of the major shareholders of EON Cap – RH Development Sdn Bhd under Tan Sri Tiong Hiew King (16.3%), Kualapura Sdn Bhd and Lintang Emas Sdn Bhd under Rin (15.4%), the Employees Provident Fund (10.7%) and Khazanah Nasional Bhd (10%) – want to sell their stakes.
This is with the exception of Primus Pacific Partners Ltd (20.2%), which paid a high price of RM9.55 per EON Cap share last year.
RH Development, Kualapura and Lintang Emas had informed EON Cap that they had received approval from Bank Negara to start negotiations with HLB last week.
An industry observer, however, feels that there is no clear push factor for the major shareholders such as Rin, Tiong and Primus to sell.
“If Rin and Tiong had wanted to sell, they would have done it a long time ago. I think they want to see what will be offered.
“Moreover, HLB will have to offer a very good price for Primus to sell. Primus will have to answer to its shareholders as a private equity fund if it suffers too much a loss in the sale,” he said.
Another analyst with a bank-backed research house reckons that in addition to deliberating on acquisition talks with HLB, the board may also discuss the possible transaction structure for the proposed sale.
According to the analyst, a most likely scenario could be to propose an assets and liabilities sale to HLB.
“EON Cap would then need to hold a shareholders’ meeting if the board approves this structure. Only 50% plus one EON Cap share vote (in terms of value) at the shareholders’ meeting is needed to approve the transaction,” she said.
She added that EON Cap’s major shareholders, with the exception of Primus, would collectively have a 52.4% stake in the banking group, thus enabling an assets and liabilities sale to go through.
“This will help to simplify matters for EON Cap and HLB. Primus will not be the deal breaker in the negotiations then,” the analyst said.
EON Cap would become a cash-rich shell company which could be de-listed and its cash repaid to its shareholders, the analyst added.
Another alternative route is to get a 33% trigger for a general offer and ultimately acquire a 90% stake in EON Cap. This route could hit a snag if Primus refuses to sell its 20.2% stake, thus denying HLB of acquiring the stipulated 90% stake in EON Cap.
EON Cap shares closed 10 sen higher at RM6.84 yesterday.
Friday January 1, 2010 EON Cap advised to get nod for institutional-level talks
By YAP LENG KUEN
PETALING JAYA: The board of EON Capital Bhd (EON Cap), which met yesterday, was advised to seek Bank Negara approval to start negotiations on an institutional level with Hong Leong Bank Bhd (HLB) on the latter’s proposed buyout offer.
Sources indicated that the advice was based on the fact that the board had a fiduciary duty to obtain the consent of the authorities to commence formal discussions on an institutional level between two anchor banking groups.
Currently, two major shareholders – Rin Kei Mei and Tan Sri Tiong Hiew King – have sought and obtained the nod to negotiate on an individual basis for the sale of their indirect stakes totalling 31.7% .
HLB is also believed to have approached Bank Negara to talk to EON Cap as an institution, and not to individual or targeted shareholders, on its proposed takeover offer. However, it is believed that the approval is still pending.
Rin and Tiong, whose stakes are held through Kualapura Sdn Bhd and Lintang Emas Sdn Bhd (15.4%), and RH Development Sdn Bhd (16.3%) respectively, are said to be seeking the advice of a financial adviser, for which Goldman Sachs is among the top names in the running.
Primus Partners Ltd, which holds 20.2% in EON Cap and is apparently the lone voice of protest, was believed to have sent out a strong message objecting to what it felt was “a restricted offer” from just one bank and at such an undervalued offer.
Primus had bought EON Cap, which closed at RM6.84 yesterday, at RM9.55 per share. HLB’s Tan Sri Quek Leng Chan is said to be offering just RM5.50 to RM6 per share, which values EON Cap at less than 1.3 times book value.
The Taiwan-based private equity firm is also said to be asking for a chance to take the idea to the open market where EON Cap may fetch a higher counter bid and minority shareholders may also get a better deal.
Earlier, StarBiz reported that Primus was believed to have approached Singapore’s Temasek Holdings Ltd for a joint bid, potentially through the Alliance banking group in which Temasek holds 29.27%.
Some observers opined that the proposal was likely to be put to shareholders for their vote.
They also viewed that the board of a bank had a duty to preserve the strength and stability of operations; hence the meeting might also have touched on any potential impact and the way forward, should a merger take place, in which case one banking licence would have to be cancelled.
Wednesday January 6, 2010
How much will tycoon quek pay for Eon Capital
By ELAINE ANG
Most forecasts are for RM6.50 to RM8 per share
PETALING JAYA: How much will business tycoon Tan Sri Quek Leng Chan pay for EON Capital Bhd (EON Cap) may well be one of the most frequently asked questions in the domestic banking sector now.
As with any sale and purchase transaction, pricing remains the key factor in the Hong Leong Bank Bhd (HLB) and EON Cap merger and acquisition (M&A) talks.
A few prices have been bandied about since HLB told the stock exchange that it had received Bank Negara’s nod on Dec 17 to talk to “certain shareholders” of EON Cap to acquire an interest in its smaller rival.
Prices speculated upon have ranged from a low of RM5.50 per share to the RM8.20 that major shareholders Rin Kei Mei and Tan Sri Tiong Hiew King were said to be willing to sell their shares at.
Recent M&A transactions in the country provide a wide range of benchmarks, from 0.9 times price-to-book value (PBV) in the case of the Bank of East Asia Ltd (BEA) acquiring a 20.5% stake in Affin Holdings Bhd in November 2007 to 2.2 times PBV when Abu Dhabi Commercial Bank bought a 25% stake in RHB Capital Bhd in May 2008.
However, analysts believe that expectations on valuations have narrowed significantly due to the global financial crisis.
Funding costs have also increased in tandem with the more intense scrutiny on capital requirements.
In the case of EON Cap, its fragmented shareholding meant that a buyer would face a complicated transaction process.
In addition, potential buyer Quek has a reputation of being a shrewd businessman who will not pay a significant premium over book value for any acquisition.
So what is EON Cap worth?
Most analysts have forecast a price tag ranging from RM6.50 (1.4 times PBV) to RM8 (1.6 times PBV) per share.
To some shareholders, the price may be a tad on the low side especially since Primus Pacific Partners Ltd paid a hefty RM9.55 per share (2.1 times PBV) for its 20.2% stake in early 2008.
“What Primus paid at that time was more or less the norm for acquiring a regional bank.
“Malayan Banking Bhd paid a premium of 4.6 times PBV for a stake in PT Bank Internasional Indonesia Tbk at about the same time,” an analyst said.
But another analyst argued that the premium paid for an Indonesian bank could not be compared with the acquisition of a local bank in the country as Indonesia was a bigger market with higher growth potential.
“Net interest margins are about 6% in Indonesia versus over 2% here. Our market cannot be viewed as an exciting market. It is smaller and more competitive especially with liberalisation,” he said.
Moreover, although EON Cap has embarked on a transformation exercise since Primus became a major shareholder of the group in February 2008, analysts said apart from the kitchen-sinking of its non-performing loans, the transformation had not shown any visible improvement in its market positioning and franchise strengths.
EON Cap’s market share of domestic loans had declined to 4.2% at the end of September 2009 from 4.4% at end-March 2008.
Its market share of domestic deposits is flattish at 3.2% at end-September 2009 from 3.1% at end-March 2008. Many think that EON Cap’s transformation journey has been facing numerous roadblocks given the headstart by other banking groups such as Alliance Financial Group Bhd and CIMB Group Holdings Bhd, as well as the changing banking landscape following the financial and economic crisis.
Another risk to expectations of a higher acquisition price for EON Cap versus its current share price of RM6.80 would be the fact that the entry cost of its four non-strategic shareholders – Rin, Tiong, the Employees Provident Fund (EPF) and Khazanah Nasional Bhd – could be much less, thus a lower acquisition price might be acceptable especially if they are also offered HLB shares to ride the further upside in a much stronger banking franchise in addition to cash.
Rin and Tiong are believed to have paid only about RM2 per share for their respective stakes in EON Cap.
And with HLB’s solid forays into China and Vietnam as well as plans to expand to Indonesia and Thailand, it is likely to walk away and build its growth elsewhere if the price is too expensive.
If that happens, EON Cap shareholders may have missed an opportunity to sell out to a shareholder with a proven track record of value creation that should benefit EON Cap.
“It will be hard for major shareholders such as EPF, which has a 10.7% stake and Khazanah with 10% to sell their stakes in the open market.
“They may see it as an opportunity to exit the company,” an analyst said.
