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Twist in tale of EON Capital
By Chong Pooi Koon and Hamisah Hamid
Published: 2010/01/20
EON Capital, which is being eyed for a takeover by Hong Leong Bank, has asked for Bank Negara's approval to talk to potential third parties
The events surrounding EON Capital Bhd (EONCap) (5266) have taken a surprising turn.
The banking group, which is being eyed for a takeover by Hong Leong Bank Bhd, yesterday asked for Bank Negara Malaysia's approval to talk to potential third parties and their related corporations in the country.
The approval would cover an option for EONCap to either sell its banking assets or buy other rivals.
On January 6, Hong Leong obtained Bank Negara's approval to start talks with EONCap. Banking executives said that EONCap's statement to Bursa Malaysia was a surprise because it did not mention Hong Leong or any other banks.
Effectively, it seemed as if EONCap was asking for a blanket approval to talk to multiple parties.
"Ultimately, Bank Negara must know who (EONCap) wants to talk to," said one banker.
However, banking sources said EONCap's letter to Bank Negara includes a list of banks that it wants to talk to although this was absent in the statement to Bursa Malaysia. The sources said there were more than three banks and they included Hong Leong.
EONCap officials could not be reached for comment.
Under banking rules, a bank can talk to multiple parties for a takeover. This was not allowed before 2006.
Another banking executive said EONCap's statement may imply that it has other options apart from agreeing to a takeover by Hong Leong.
Businessman Rin Kei Mei and the Tiong family, who hold 31.7 per cent of EONCap, have got Bank Negara's approval to talk to Hong Leong. Khazanah Nasional Bhd, which has 10 per cent of EONCap, also has Bank Negara's approval to talk to Hong Leong.
The Employees Provident Fund, which has another 10.94 per cent, is also open to a sale.
However, Hong Leong is waiting for the board of EONCap to agree to talks. If the board agrees, Hong Leong's takeover proposal will then be presented to EONCap's shareholders.
It is believed that Hong Kong investment firm Primus Pacific Partners, with 20 per cent of EONCap, is resisting the Hong Leong bid as the offer could be low.
Primus paid RM9.55 a share for EONCap. EONCap stock closed 6 sen up at RM7.01 yesterday.
Earlier yesterday, EON Bank group chief executive officer Michael Lor told reporters that takeover talks would not have an impact on the bank's operations.
He said the talks might not result in any merger or acquisition.
"Seeking approval to talk does not mean anything," he said after launching the bank's deposit campaign in Kuala Lumpur.
However, EON Bank is proud there is a suitor.
"For the management, although we are looking at it with interest, we are pretty proud that, suddenly, people are interested in us. We will continue to strengthen this franchise," Lor said.
Hong Leong to walk away if EONCap bidding war starts?
By Chong Pooi Koon Published: 2010/01/21
Analysts say they still believe Hong Leong Bank will not overpay for an acquisition and it can walk away from the deal at no loss to itself
Hong Leong Bank Bhd (5819) may walk away from the takeover of smaller rival EON Capital Bhd (EONCap) if a bidding war erupts or the talks drag on too long, analysts say.
"We still believe Hong Leong will not overpay for an acquisition. If the price is excessive, (it) can walk away from the deal at no loss to itself," HwangDBS Vickers Research wrote in a report early yesterday after EONCap said it was asking for the regulator's consent to start talks with potential third parties.
The approval that EONCap has asked for also covers the option to buy other rivals.
However, Bank Negara Malaysia, in a response yesterday, only gave it the green light to start merger talks with Hong Leong, which had earlier been given the approval.
EONCap is opening the door for bidding, analysts said, and this may push up its share price if there are competing bids.
Besides Hong Leong, Business Times learnt that EONCap has submitted to the central bank the names of at least two other parties that it plans to talk to.
Alliance Financial Group Bhd, the smallest lender in the country in which Singapore's Temasek Holdings owns 29 per cent share, is one name being bandied about.
"Alliance is weaker in the car loan segment where EONCap is strong, while EONCap is weaker in the mortgage business where Alliance has an edge," a banking analyst said, pointing to the potential synergy that the two smaller banks would have.
Alliance, whose chief is on leave pending an internal probe, may also be on the lookout for options, observed others.
Still, the top three Malaysian banks - Malayan Banking Bhd, CIMB Group Bhd and Public Bank Bhd - have all made successful ventures overseas and are unlikely to be interested in EONCap.
Affin Holdings Bhd, although it is the second smallest local bank and may be vulnerable to stiffer competition, has a strong shareholder in the Armed Forces Fund, which is probably not keen to give up control.
This would leave RHB Capital Bhd and AMMB Holdings Bhd, currently the fourth and fifth largest banks by assets.
RHB Capital is at risk of losing the number four spot to a combined Hong Leong-EONCap if the deal goes through. RHB, which aspires to be one of the top banks in the region, may need greater scale locally, observers pointed out.
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.
