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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.
