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EONCap gets nod to start talks with only HLBB
Written by Joy Lee
Thursday, 21 January 2010 11:08
KUALA LUMPUR: EON Capital Bhd (EONCap) has received Bank Negara Malaysia’s (BNM) nod to start talks with Hong Leong Bank Bhd (HLBB) for the potential divestment of its assets and liabilities, including EON Bank Bhd.
However, it would appear the central bank has kept silent, for now, on EONCap’s request to also start negotiations with other banks on a potential merger.
“BNM has no objection for EONCap to commence negotiations with HLBB for the potential divestment of the assets and liabilities of EONCap and EON Bank including EONCap’s equity interest in EON Bank for the purpose of merging the licensed entities under EON Capital Group with Hong Leong Bank Group,” EONCap announced to Bursa Malaysia yesterday. The approval is valid until June 30, 2010.
In the short statement, EONCap added that it would make further announcements as and when it received new relevant information.
Yesterday’s announcement meant that EONCap had yet to get blanket approval to talk to other financial institutions to either dispose of its assets and liabilites to, or to acquire the assets and liabilities of, the third party banking group.
The absence of a blanket approval would mean that time is running out for EONCap’s largest shareholder, Hong Kong-based Primus Pacific Partners Ltd, to invite other potential bids.
Additionally, EONCap’s other major shareholders including Rin Kei Mei, Tan Sri Tiong Hiew King, Khazanah Nasional Bhd and the Employees Provident Fund, which collectively own 54.5% of EONCap, are pursuing talks with HLBB.
EONCap’s share price rose 17 sen or 2.43% to RM7.18 in intra-day trading yesterday following its move to seek a blanket approval from the central bank. The counter opened at its intra-day low of RM7.03 and closed at RM7.13, a gain of 12 sen or 1.71%. A total of 1.46 million shares changed hands.
HLBB closed up three sen at its intra-day high of RM8.42, with 748,900 shares traded. Its intra-day low was RM8.38.
OSK Research said the fact that EONCap’s major shareholders had committed to disposing of their stakes would ensure that the eventual sale of the assets and liabilities of EON Bank reached fruition.
“We believe that this is just a blanket approval that the board had sought and does not indicate any firm acquisition intention as the group is still in the early stages of executing its own transformation process,” it said.
The research house has a trading buy call on EONCap with a target price of RM7.60.
EONCap seeking BNM’s approval for a merger and acquisition exercise with a potential third party may indicate that the banking group could be keen to invite other competing bids that could rival that of HLBB’s.
Maybank Investment Bank (Maybank IB) said EONCap’s move was positive as it could attract a higher offer.
The research firm said it was earlier reported that HLBB’s offer could be pegged at RM5.50 to RM6 per share, which valued EONCap at 1.1 times to 1.2 times its price/book value ratio (P/BV) based on RM5.03 book value of equity per share as at Sept 30, 2009.
“This is too low, in our view, considering that the average valuation of domestic banking M&As since 2006 was 1.7 times P/BV.
“A palatable offer would be 1.5 times to 1.7 times P/BV implying RM7.50 to RM8.50 offer price. This also considers about RM1 billion of unutilised tax losses at EONCap’s investment banking subsidiary, translating into 36 sen per share of ‘hidden value’,” Maybank IB said.
RHB said EONCap’s request for the blanket approval was an open invitation to other banking groups that may be interested in a merger.
“Moreover, the company may be looking at potential merger with smaller banks in Malaysia to increase scale and compete more effectively with larger banks. Potential candidates could be the two other small-size banks, Alliance Financial Group and Affin Bank,” it said.
This article appeared in The Edge Financial Daily, January 21, 2010.
EONCap keeps options open
Written by Joy Lee
Wednesday, 20 January 2010 11:41
KUALA LUMPUR: EON Capital Bhd (EONCap) has left the door open to negotiate with other banks, besides Hong Leong Bank Bhd (HLBB), for a potential acquisition or disposal of assets and liabilities or a merger and acquisition (M&A).
The banking group yesterday announced that it had submitted an application to Bank Negara Malaysia (BNM) to start negotiations with potential third parties and their related corporations in Malaysia.
EONCap said the negotiations would be for the banking group, which wholly owns EON Bank Bhd, to either dispose of its assets and liabilites to a third party or to acquire the assets and liabilities of the third party banking group.
However, industry players are unsure how the central bank would respond to EONCap’s request, given that no other banking group, at least publicly, had expressed interest in EON Bank.
Yet, if permitted to do so, there is nothing to stop EONCap from inviting proposals or offers from other banking groups.
BNM had already given HLBB the green light to talk to certain major shareholders as well as the boards of EONCap and EON Bank on a potential merger of their assets and liabilities.
However, following a change in banking regulations a few years ago, banks are now permitted to hold talks with multiple parties for a potential M&A or for transactions involving their assets and liabilities.
EONCap’s application to BNM for permission to talk to other parties may indicate that its major shareholder Primus Pacific Partners Ltd is reluctant to clinch a deal with HLBB, without a competing bid towards extracting better value for EON Bank. Primus is the single largest shareholder of EONCap with a 20.2% stake.
HLBB had, two weeks ago, received the central bank’s approval to start talks with EONCap. Industry observers have said pricing could be an issue, considering that tycoon Tan Sri Quek Leng Chan is well known for getting good bargains when it comes to asset acquisitions.
In other words, Quek seldom pays premium when buying assets.
On the other hand, Primus, the Hong Kong-based private equity fund, had paid a premium for its EONCap stake at RM9.55 per share versus yesterday’s market close of RM7.01, 26.6% below the acquisition price in 2008. As at Sept 30, 2009, EONCap’s net asset per share stood at RM5.03.
Even if HLBB was not Primus’ preferred buyer, HLBB has already secured permission to talk with Rin Kei Mei and Tan Sri Tiong Hiew King, who own a combined stake of 32.57% in EONCap, through Kualapura Sdn Bhd, Lintang Emas Sdn Bhd and RH Development Sdn Bhd.
As of now, Quek seems to have the upper hand to take over EONCap as he could talk with the other two shareholders to buy their 32.57% stake as Primus’ consent is absolutely not required.
Furthermore, Khazanah Nasional Bhd has made known its intention to sell its 10% stake in EONCap. Also, the Employees Provident Fund, which holds 11.91% of EONCap, may be interested to sell the stake to Quek.
Collectively, these four parties, which have shown interest to sell their stakes to Quek, hold 54.48% of EONCap. Should they reach agreement on the divestment, Quek will have the controlling stake in the group and consequently HLBB will have to make a general offer for the remaining shares in EONCap.
Nonetheless, even then Primus could still choose to hold on to its shares and work with Quek under the same roof with the latter taking the reins. But the question now is whether EONCap will be permitted to extract a potentially higher value for its shareholders by extending negotiations to other banks?
This article appeared in The Edge Financial Daily, January 20, 2010.
HL Bank offers RM4.92b for EON Cap Written by Joseph Chin
Thursday, 21 January 2010 19:20
KUALA LUMPUR: HONG LEONG BANK BHD [] has made an offer to acquire the entire assets and liabilities of EON CAPITAL BHD [] for RM4.92 billion to be satisfied fully in cash.
HL Bank said on Thursday, Jan 21 the offer, which will be satisfied fully in cash, is based on the issued and paid-up share capital of EON Capital Bhd as at Sept 30, 2009 that translates to a price of RM 7.10 per EON Capital share.
The offer price of RM 7.10 per share represents a premium of 31.5% to the 180-day volume weighted average price (VWAP) of EON Capital shares as at Dec 16, 2009, being the date prior to the announcement of HLBB’s receipt of Bank Negara Malaysia’s approval to commence negotiations with EON Capital's substantial shareholders.
"The offer, if accepted, will result in the merger of HLBB and EON Capital that would lead to the creation of a new enlarged banking franchise with significant size and reach both in Malaysia and regionally," it said.
EON Cap shares closed three sen lower at RM7.10 on Thursday.
Meanwhile, EON Cap said it had received a written proposal from Hong Leong Bank and "will review the terms of such proposal and will make such further announcements as and when it has comprehensively reviewed the proposal and made a decision thereon".
To recap, on Dec 17, Hong Leong Bank received Bank Negara's approval to commence negotiations with certain shareholders of EON Cap for a potential acquisition of the assets and liabilities, including equity interests, in EON Cap.
HwangDBS Vickers Research, had in a report issued on Dec 21, said this corporate development could work out as a win-win situation for both EON Cap and Hong Leong Bank as the latter seeks to transform into a regional player.
It said EON Cap is worth RM6.30 but with an M&A premium, it could run up to RM7.35. Its fundamental fair value for EON Cap was RM6.30.
Later, EON Capital said its three shareholders -- R.H. Development Corporation Sdn Bhd, Kualapura (M) Sdn Bhd, Lintang Emas -- had received approval from Bank Negara to commence negotiations with Hong Leong Bank Bhd for the potential equity divestment of their combined 31.67% stake.
The latest announcement was on Wednesday, Jan 20 when EON Capital said it had received Bank Negara's nod to start talks with Hong Leong Bank for the potential divestment of its assets and liabilities, including EON Bank Bhd.
Hong Leong Bank Bhd (5819) has offered RM7.10 per share in a RM4.9 billion all cash deal to take over smaller rival EON Capital Bhd.
The offer will pave the way for a merger that will create the country's fourth largest bank by assets, overtaking RHB Capital Bhd.
EONCap, owner of the seventh biggest among nine local lenders, said it has received Hong Leong's proposal yesterday to buy its entire assets and liabilities.
"The board of directors will review the proposal and will make further announcements as and when it has comprehensively reviewed the (terms) and made a decision," EONCap said in a stock exchange announcement yesterday.
The smaller lender must respond within seven working days starting yesterday, after which the offer will lapse, according to a separate filing by Hong Leong. Once it agrees to the offer, EONCap must deal exclusively with Hong Leong on the sale.
"This is a strong, multi-billion investment into Malaysia's domestic growth story," Hong Leong Financial Group Bhd president Raymond Choong said in a press release.
"The merger is a combination of two strong Malaysian banks that will offer the economy, banking sector, customers, employees and shareholders of both banks a highly compelling proposition."
Hong Leong, currently the number six Malaysian bank, has set conditions in its buyout proposal that restricts EONCap from paying extraor-dinary dividends before the transaction is completed, or to have any adverse change in its financial position.
Hong Leong said the offer price represents a 31.5 per cent premium to EONCap's average share price in the six months before the takeover news first surfaced on December 17.
EONCap shares closed 3 sen lower at RM7.10 yesterday.
EONCap must confirm within the seven-day offer period that it would present the offer to shareholders in a general meeting and that it will issue the notice to shareholders within five weeks.
EONCap is also required to finalise and submit for regulators' approval within four weeks of the offer as part of Hong Leong's conditions.
The transaction will need the approval of shareholders from both banks, Securities Commission, as well as the Finance Ministry through Bank Negara Malaysia.
Friday January 22, 2010 HLB offers RM4.9bil cash for EON Cap
By YAP LENG KUEN
RM7.10 per share bid subject to certain conditions
PETALING JAYA: Hong Leong Bank Bhd (HLB) has made a cash offer of RM7.10 per share or RM4.921bil to acquire the entire assets and liabilities of EON Capital Bhd (EON Cap).
HLB told Bursa yesterday the offer was subject to, among other things, it being satisfied with the results of a due diligence on EON Cap and its subsidiaries.
EON Cap is given seven days to revert and confirm that it agrees to, among other things,:
·Table the offer for consideration and approval by the shareholders of EON Cap at a general meeting;
·Finalise and make submissions to the authorities for the relevant approvals within four weeks from the offer date; and
·Deal with HLBB exclusively on the sale of the assets and liabilities of EON Cap.
The cash offer of RM7.10 per share is viewed as a more palatable starting point for negotiations than the original RM6.50 price range, a source indicated.
“Many had expected the worst but this offer price (which is the closing price of EON Cap yesterday) is not such an utter disappointment,’’ the source said.
Analysts said this valued EON Cap at 1.4 times book value, with some saying it was within expectations and one estimating the fundamental value to be below today’s market value.
Others feel there should be better premium as this entailed full management control, not just a strategic partnership; moreover, EON Cap is on a robust transformation uptrend.
“A lot of strategic partnerships — Temasek/Alliance Financial Group; Bank of East Asia/Affin Holdings Bhd and the Employees Provident Fund (EPF)/RHB Capital Bhd — were done above one time book value. (The exception was Primus Pacific (HK) Ltd that bought its 20.2% stake in EON Cap at more than two times book value).
“But those involving mergers or other forms – Bumiputra-Commerce Bank Bhd’s (now CIMB Bank) merger with Southern Bank Bhd; privatisation of AmInvestment Group Bhd (AIGB) by AMMB Holdings Bhd; privatisation of CIMB by Bumiputra-Commerce Holdings Bhd and RHB Cap’s purchase of RHB Bank from Khazanah Nasional Bhd – were done at above two times book value,’’ a banking analyst had pointed out.
Two major shareholders of EON Cap – Rin Kei Mei and Tan Sri Tiong Hiew King who own a combined indirect stake of 31.7%, and Khazanah Nasional Bhd, which has 10% – have received the approval to negotiate for the sale of their stakes in EON Cap.
The EPF, which owns a 10.7% stake in EON Cap and 9.31% in HLB, is expected to study the proposal via the board of EON Cap.
Under the assets and liabilities method, HLB only requires 50% of shareholders’ approval plus one share for the deal to go through.
EON Cap is believed to be holding its board meeting today, where it may be briefed on this offer from HLB.
In a media statement, HLB said its offer price of RM 7.10 per share represented a premium of 31.5% to the 180-day volume weighted average price of EON Cap shares as at Dec 16, 2009, when it announced the receipt of approval to commence talks with EON Cap’s substantial shareholders.
“The offer, if accepted, will result in the merger of HLB and EON Cap that would lead to the creation of a new enlarged banking franchise with significant size and reach both in Malaysia and regionally,’’ HLB said.
Raymond Choong, Hong Leong Financial Group Bhd president and HLB director said: “We are confident of and committed to the economic fundamentals and potential of the country. This is really an investment into the growth potential of the country. ”
HLBB offers RM7.10 per EONCap share
Written by Joy Lee
Friday, 22 January 2010 11:22
KUALA LUMPUR: Hong Leong Bank Bhd (HLBB) yesterday offered RM4.92 billion for the entire assets and liabilities of EON Capital Bhd (EONCap), which owns EON Bank Bhd, representing an offer price of RM7.10 per share.
The offer, to be fully satisfied in cash, translates to 1.4 times book value based on a shareholders’ fund of RM3.49 billion as at Sept 30, 2009.
The offer may not go down well with the board of EONCap given that recent merger and acquisition (M&A) transactions were done at a much higher value.
According to RHB Research recently, the second round of consolidation, including those carried out by CIMB Group Holdings Bhd, RHB Capital Bhd and AMMB Holdings Bhd, were transacted at more than two times book value.
The offer price of RM7.10 per share is a premium of 31.5% over the 180-day volume weighted average price of EONCap shares as at Dec 16, 2009, being the date prior to the announcement of HLBB’s receipt of Bank Negara Malaysia’s (BNM) approval to start negotiations with EONCap’s substantial shareholders.
Tan Sri Quek Leng Chan, the founder of the Hong Leong Group of companies, is not known to overpay for acquisitions and indications were that he would not pay more than 1.5 times book value for EONCap. Photo by Bloomberg
EONCap shed three sen to RM7.10 at yesterday’s close, with 1.36 million shares changing hands, while HLBB rose one sen to an all-time high of RM8.43, with 1.24 million shares done.
The offer could be met with strong resistance from Hong Kong-based private equity fund Primus Pacific Partners Ltd, which is the single largest shareholder of EONCap.
Primus had paid a high price of RM9.55 per share or a total of RM1.34 billion for its 20.2% block back in 2008, translating to 2.16 times book value.
In what is seen as a bid by Primus to extract value through other competing bids, EONCap has sought a blanket approval from BNM to hold talks with other financial institutions for a potential merger and acquisition exercise. However, it has yet to receive such an approval from the central bank.
“The offer, if accepted, will result in the merger of HLBB and EONCap that would lead to the creation of a new enlarged banking franchise with significant size and reach both in Malaysia and regionally,” HLBB said in a statement yesterday.
The merger would propel HLBB to become the fourth-largest banking group in the country with total assets of about RM111 billion. It is currently ranked sixth with total assets of RM77 billion. The combined entity would have a network of over 320 branches and close to 1,200 self-service terminals.
“The merger is a combination of two strong Malaysian banks that would offer the economy, banking sector, customers, employees and shareholders of both banks a highly compelling proposition,” Raymond Choong, director of HLBB and president of parent company, Hong Leong Financial Group Bhd, said in a statement.
There had been earlier indications that Tan Sri Quek Leng Chan, the founder of the Hong Leong Group of companies, would be unwilling to pay anything above 1.5 times book value for EONCap due to its low return on equity (ROE) of 4.2% and return on assets (ROA) of 0.3% in FY2008.
Quek is not known to overpay for his acquisitions.
RHB forecast EONCap’s ROE for FY2009F and FY2010F at 10.53% and 9.16% while ROA for FY2009F and FY2010F were pegged at 0.79% and 0.71%, respectively.
“We believe comparing the potential offer price for EONCap with the transacted valuation of strategic partnerships (with ANZ, BEA and Temasek) of less than two times is not reasonable given that the objectives of selling part of the stake to strategic partners at such prices were to increase competitiveness while existing shareholders still retain certain stake which will eventually benefit from value propositions of the strategic partners.
“Moreover, selling out at 1.2 times to 1.5 times P/B when the bank is already showing signs of improvement implies that investors would miss out on the future prospects of the company. We believe a pricing of closer to two times would be a fairer valuation,” RHB said in a recent report.
It is also uncertain if EONCap’s other major shareholders — Rin Kin Mei and Tan Sri Tiong Hiew King, who hold a collective stake of 32.57% in EONCap — would welcome the offer.
Meanwhile, EONCap’s board of directors has kept its response to HLBB’s offer to a bare minimal. In its statement to Bursa Malaysia Securities, EONCap acknowledged the receipt of HLBB’s written proposal and said its board “will review the terms” and “will make such further announcements as and when it has comprehensively reviewed the proposal and made a decision thereon”.
This article appeared in The Edge Financial Daily, January 22, 2010.
Hong Leong's offer for EONCap seen as fair
By Chong Pooi Koon Published: 2010/01/23
Stock analysts feel Hong Leong Bank Bhd has made a fair offer in its takeover bid for EON Capital Bhd, as the smaller bank's weaker franchise may not justify a higher price.
EONCap shares fell 8 sen to RM7.02 yesterday after stockbrokers including OSK Investment and HwangDBS Vickers cut the 12-month target price to RM7.10, reflecting what Hong Leong (5819) is willing to pay.
There is a high chance the deal will be successful, the two brokers said, thus the stock should trade closer to the offer price.
Hong Leong's cash offer of RM7.10 per share priced EONCap at 1.4 times its 2009 book value, which falls at the lower end of the valuation range in deals involving medium-sized domestic banks in recent years.
The Employees Provident Fund had paid 1.8 times book for RHB Capital in 2007, while Temasek Holdings had forked out 1.7 times book for Alliance Financial Group in 2004. In 2006, ANZ bought its stakes in AMMB Holdings Bhd for 1.4 times its net tangible assets.
Still, Hong Leong's offer is fair given EONCap's weaker than industry's return-on-equity (ROE), loans growth and asset quality, OSK's analyst Keith Wee said. ROE is a measure of profitability.
"We strongly believe the offer from Hong Leong is fair and reasonable. Aside from a merger and acquisition angle, we see little upside to EONCap's fundamental fair value in the short term," AmResearch wrote in a report.
The bank has made little progress to boost its loans and deposit-taking franchise since a transformation programme was initiated by Primus Pacific Partners in February 2008 when the Hong Kong fund came in as a new strategic shareholder.
Without the potential takeover, EONCap's fair value would have been pegged at between RM5.50 and RM6.60 by AmResearch, HwangDBS and OSK.
"In addition, we do not expect a competing bid for EONCap to emerge in the short term. We believe shareholders will be better off taking the current all-cash offer from Hong Leong," AmResearch said.
