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Analysts: HLBB-EONCap deal could still go through Written by Ellina Badri
Tuesday, 20 April 2010 13:23
KUALA LUMPUR: The deal for Hong Leong Bank Bhd’s (HLBB) proposed takeover of EON Capital Bhd’s (EONCap) assets and liabilities could still go through, but an equity offer by HLBB hangs in the balance.
Following a statement released by EONCap major shareholder Primus Pacific Partners Ltd last Sunday, in which Primus re-affirmed its long-term commitment to EONCap, Maybank Investment Bank said: “We read it as a sign that Primus may be a willing part if HLBB offers a share alternative.”
“Also, we think that Primus would challenge HLBB’s takeover even if 50% plus one share of EONCap’s shareholders agree. Primus’ entry cost was RM9.55 per EONCap share back in 2007 and it would incur a capital loss of RM315 million based on HLBB’s RM5.06 billion offer,” it said. Primus has a 20.2% stake in EONCap.
Primus, in its first official statement on the EONCap takeover bid, said it was not planning to sell any of its shareholdings in any of its investment companies, as it believed all its companies were well-positioned to take advantage of the long-term economic growth prospects in the Asia-Pacific.
“We believe this is especially true for EONCap, given the strength of the Malaysian economic recovery, the health of the financial services industry and the strong platform that we have created which, together with its strong capital base, provides excellent opportunities to continue to grow our business,” the Hong Kong-based firm said.
On April 2, EONCap had announced it would table HLBB’s RM7.30 a share offer to shareholders, but said it had asked HLBB to consider adding a part-equity option in the offer.
In a note yesterday, OSK Research said Primus’ statement could indicate there could have been some form of disagreement with regard to the pricing of the proposed equity option to be offered to shareholders of EONCap.
However, it added that given that the current mode of asset and liability acquisition, which only required a 50% plus one share approval for HLBB to acquire EONCap’s assets and liabilities, still held, the latter’s other major shareholders — Rin Kin Mei, Tan Sri Tiong Hiew Khing and Khazanah Nasional Bhd with a combined 43% stake — “should still have a high success rate in pushing the deal through”.
The research house also believed HLBB’s current offer of RM7.30 a share was fair, given the lack of other credible bidders.
“The group is still in the early stages of its strategic transformation and sustaining a higher valuation of RM7-RM8 would imply a return on equity (ROE) of 12%-14% from our current forecast of 10.6% ROE for financial year ending Dec 31, 2010, which equates to a loans growth exceeding 14%, nearly double the industry’s current 7.8%.
“This would certainly require a longer gestation period, given the group’s lack of scalability, funding, relatively saturated domestic banking landscape and increased competition from foreign banks,” OSK Research said.
Meanwhile, the market is still eyeing possible moves by Affin Holdings Bhd after The Edge Financial Daily reported last week that the group, controlled by Lembaga Tabung Angkatan Tentera and Hong Kong’s Bank of East Asia Ltd, had submitted a revised proposal for EONCap to Bank Negara Malaysia (BNM).
While Affin had announced that the news was “inaccurate”, it is learnt this was the third time it had done so, this time offering a higher offer than HLBB’s and including a share equity element.
Maybank IB, in a recent note, highlighted that such a proposal would breach a condition in HLBB’s offer, which would lead to the HLBB-EONCap deal collapsing.
“Nonetheless, this cannot stop Affin from naming a price after BNM gives its nod. A higher price is refreshing. Our view is that HLBB’s offer is low, without a sufficient takeover premium accorded,” it said.
This article appeared in The Edge Financial Daily, April 16, 2010.
PETALING JAYA: EON Capital Bhd (EON Cap) is targeting the end of May or early June to table the latest offer to its shareholders made by Hong Leong Bank Bhd (HLB).
On April 1, HLB had raised its offer to RM5.06bil cash, or RM7.30 per share, from the original RM4.92bil, or RM7.10 per share, for the assets and liabilities of EON Cap, the country’s seventh-largest financial services group.
“The offer will be tabled at the forthcoming AGM once all the necessary approvals have been obtained probably around late May or early June.
“We’ve to see how the timing works,” EON Cap group chief executive officer Michael Lor said yesterday.
Speaking to reporters after a ceremony to give away prizes to the winners of the bank’s first quarter (Q1) “Savers Go Places” campaign, he said that so far, there was no word from Affin Holdings Bhd, which has hinted that it was interested in buying over EON Cap.
“I really have no comments over that as we’ve not been approached officially,” Lor said.
It was reported last week that Affin, the country’s eighth-largest financial services group, was interested in buying over EON Cap at a price better than HLB’s offer.
On Monday, Affin’s deputy chairman Tan Sri Lodin Wok Kamaruddin said the bank has not obtained Bank Negara’s approval to initiate any negotiations but might do so if there was an opportunity.
On another note, Lor said EON Cap was targeting 5% growth, or RM400mil in deposits, for Q2 after its deposits grew by RM200mil in Q1. EON Cap’s financial year ends Dec 31.
“We saw a 3% growth in individual deposits in Q1, which is always a slower quarter compared with the final quarter of 2009, and on an annualised basis, we’re pretty happy with the growth,” he said.
He added that the bank was targeting 20% growth year-on-year, or RM500mil in deposits, for the year.
Lor said the bank would have a “fantastic” Q1 in terms of profit before tax and profit after tax. “I think we’ve surpassed our own expectations and despite all the noise surrounding the bank, we’ve performed over and above business as usual and this is reflected in the month of April too,” he said.
HLBB to start restricted due diligence on EONCap
Written by Yong Yen Nie, Max Koh & Joyce Goh
Wednesday, 21 April 2010 11:38
KUALA LUMPUR: Hong Leong Bank Bhd (HLBB) and EON Capital Bhd (EONCap) have received approval from Bank Negara Malaysia (BNM) for the former to perform a due diligence on the latter, sources said.
A source familiar with the matter said the scope of the due diligence was agreed upon by both banks and was submitted to the central bank for approval, which was obtained late last week.
“It will be a restricted due diligence. The due diligence will commence on the date agreed by both banks’ chief executives,” a source familiar with the matter told The Edge Financial Daily.
It is learnt that the due diligence is expected to start before EONCap’s board tables HLBB’s offer to shareholders at an EGM. The team undertaking the due diligence would include representatives of HLBB and professional accountants, a source said.
HLBB has sought to undertake a due diligence on EONCap as part of conditions to its offer to acquire the latter’s assets and liabilities.
On April 1, HLBB revised its offer price to RM5.06 billion cash, representing RM7.30 per EONCap share.
The conditions also included EONCap agreeing to issue and despatch a notice of general meeting and shareholders’ circular in respect of the offer on or before April 30, or on a mutually agreed on extended date.
The new offer translates to 1.43 times book value based on EONCap’s shareholders fund of RM3.55 billion as at Dec 31, 2009 — slightly higher than the offer of 1.39 times that HLBB had announced on March 30.
On April 2, the EONCap board said it would table the offer to its shareholders. It had also put in a request for HLBB to consider including an equity element in the offer.
Subsequently, EONCap also decided to withdraw an earlier proposal to declare a 10 sen tax-exempt dividend to its shareholders to avoid a reduction in HLBB’s offer price.
Meanwhile, EON Bank Bhd expects the net increase in deposits from its Savers Go Places campaign to double to RM400 million in the second quarter of 2010.
EON Bank group chief executive Michael Lor said the campaign, which has attracted 54,000 participants, resulted in a net increase of RM200 million in deposits during the first quarter.
“We are happy with our deposits for the first quarter of this year which saw a 3% growth compared to the preceding quarter.
“We are pretty happy as the first quarter is pretty slow for most banks and we are reaching our RM500 million target for the campaign,” he said at the prize-giving ceremony of the deposit campaign here yesterday.
Lor added that the deposits from this campaign would contribute to the bank’s overall deposit target growth of 20% for the financial year ending Dec 31, 2010.
As at Dec 31, 2009, its deposits from customers stood at RM34.5 billion.
On EONCap’s financial results for the first quarter ended March 31, Lor said the banking group was expected to have a “fantastic quarter” that would surpass expectations.
For the fourth quarter ended December 2009, EONCap’s net profit fell 6.3% to RM61.6 million from RM65.7 million on the back of a 13.3% drop in revenue to RM599.07 million from RM690.96 million a year earlier.
Yesterday, EONCap closed five sen higher at RM7.15 with 330,800 shares done, while HLBB rose one sen to RM8.70, with 1.56 million shares changing hands.
This article appeared in The Edge Financial Daily, April 21, 2010.
Affin tones down speculation on EONCap deal
Written by Yong Yen Nie
Wednesday, 21 April 2010 11:36
KUALA LUMPUR: Affin Holdings Bhd has again tried to tone down market speculation that it was interested in acquiring EON Capital Bhd (EONCap) and would be ready to make a better offer to outbid rival Hong Leong Bank Bhd (HLBB).
In an announcement to Bursa Malaysia yesterday, Affin said: “The board wishes to clarify that it has not held any discussion with any shareholder of EONCap on the proposed acquisition on an interest in EONCap nor has the board deliberated on or approved the aforementioned acquisition.”
Nevertheless, Affin said its board of directors “continuously” looks at opportunities to enhance its shareholders’ value. This includes, among others, opportunities to grow the Affin group of companies either organically or via mergers and acquisitions, it said.
“The board is always prepared to consider any potential acquisition as and when such opportunities may arise and will evaluate the viability and benefits of such opportunities accordingly,” it said.
Affin also reiterated that it had not submitted a proposal to Bank Negara Malaysia (BNM) in relation to the acquisition of an interest in EONCap.
The Edge weekly wrote on April 17 that Affin could be looking at giving EONCap shareholders cash or equity, or cash and equity of the enlarged banking entity. As such, Primus Pacific Partners Ltd, which owns a 20.2% stake in EONCap and has opposed the sale of EONCap’s assets and liabilities to HLBB, could be leaning towards Affin’s offer, given the equity element involved.
Nevertheless, on Monday, Affin deputy chairman Tan Sri Lodin Wok Kamaruddin told the media that it had not yet “officially” expressed interest in EONCap but was open to opportunities.
“We may want to have a look at EONCap if we get the opportunity from the authorities,” he told the media after the banking group’s annual general meeting.
Yesterday, Affin closed two sen higher at RM3.08 with 2.2 million shares changing hands.
This article appeared in The Edge Financial Daily, April 21, 2010.
HongLeong Bank has submitted its improved RM5.06 billion all-cash bid for EON Capital to Bank Negara, bringing the deal a step closer to completion
HONG Leong Bank Bhd (5819) has submitted its improved RM5.06 billion all-cash bid for EON Capital Bhd (EONCap) to Bank Negara Malaysia and shareholders of both banks are set to vote on it in May.
At the same time, Hong Leong said it plans to raise up to RM1.6 billion from a renounceable rights issue and RM1.8 billion from the sale of capital qualifying securities.
The submission brings the deal, which would create the country's fourth biggest banking group, a step closer to completion. However, it did not include a share option that was requested by EONCap.
Hong Kong investment firm Primus Pacific Partners Ltd, EONCap's single biggest shareholder with 20.2 per cent, has been resisting the takeover.
It paid RM9.55 per share for its stake while Hong Leong's fresh offer is worth RM7.30 a share. On April 18, Primus said it had no plans to sell its shares although it appears that the deal will happen if enough shareholders say yes.
This is because Hong Leong is proposing to buy EONCap's entire asset and liabilities, a method that requires the nod of just over 50 per cent of EONCap shareholders.
"We target to have our extraordinary general meeting to seek our shareholders' approval for the transaction by end of May," Raymond Choong, president of Hong Leong Financial Group Bhd (HLFG), said in a statement.
"The proposed rights issue, on the other hand, is undertaken to strengthen our capital base after the completion of the acquisition of EONCap assets and liabilities" Choong added.
Hong Leong plans to ask HLFG to subscribe to its portion of the rights issue, which will raise RM1.02 billion for the lender.
Hong Leong's offer comes with several conditions. Chief among them is that it has to be satisfied after going through the books of EONCap.
If the due diligence reveals any adverse effects on EONCap's financial position or any contingent liability that amounts to at least RM100 million, Hong Leong will offset its bid price against that sum or it could also choose to drop the deal.
Shares of Hong Leong rose 5 sen to close at RM8.76 while EONCap fell 2 sen to RM7.11 yesterday.
Tuesday May 18, 2010 Credit Suisse says HLB's offer price for EON Cap too low
By RISEN JAYASEELAN
PETALING JAYA: Credit Suisse Securities (M) Sdn Bhd has deemed Hong Leong Bank Bhd's (HLB) offer price for the assets and liabilities of EON Capital Bhd (EON Cap) too low.
This has put the board of directors of EON Cap in a quandary, sources said. EON Cap's board met yesterday to discuss Credit Suisse's opinion on the offer.
The board had requested for its shares to be suspended from trading, pending an announcement related to the offer.
EON Cap said late yesterday evening that its board meeting had been adjourned “pending further clarification from independent financial adviser Credit Suisse.”
But a party familiar with the deal said with Credit Suisse telling the board that the offer was too low, the board has been put in a tough spot as to what to tell shareholders.
“The board had already said it was going to present the offer to shareholders. Does it now also tell shareholders not to accept the offer?” Sources say the situation is tenuous because HLB has no intention of raising its bid.
From its due diligence of EON Cap, HLB may be inclined to ask EON Cap to make some additional provisioning as a condition to the deal, stemming from what it (HLB) deems as unrecoverable loans.
This could mean that the price HLB is willing to pay for EON Cap may be lower than the RM7.20 per share it last made.
EON Cap is said to be disappointed that HLB has not recognised certain deferred tax assets in its valuation of the former, sources say.
HLB's offer is also priced at around 1.4 times the book value of EON Bank, which some analysts deem as low in light of other banking merger and acquisitions done at higher multiples.
The bottom line is that at present, HLB's offer is the only one on the table for EON Cap's shareholders.
Current market conditions are likely to make it difficult for other bidders, such as Affin Bank Bhd, to raise funds to acquire EON Cap.
If this deal falls through, the next bidder for EON Cap may no longer have the luxury of having a lower threshold of shareholder approval for the deal to go through.
EONCap board seeks clarification from IFA
Written by Joyce Goh
Tuesday, 18 May 2010 11:08
KUALA LUMPUR: EON Capital Bhd’s (EONCap) board of directors is seeking clarification from its independent financial adviser (IFA) — Credit Suisse — on the latter’s opinion on the RM5.06 billion acquisition offer made by Hong Leong Bank Bhd (HLBB) for the assets and liabilities of EONCap.
“The board wishes to announce that the board’s meeting was adjourned to a later date pending further clarification from Credit Suisse on the IFA opinion,” EONCap said in a statement to Bursa Malaysia yesterday.
It is understood the board is likely to meet again sometime this week.
“There is some differences in opinion between the IFA and EONCap’s board who have decided to table HLBB’s offer to its shareholders for their decision in view that the offer is credible as a whole. That is why the board is seeking further clarification and they’ll meet again by end of this week,” said an industry source familiar with the matter.
Trading of EONCap’s stock was suspended yesterday afternoon for a material information arising from the outcome of the board meeting. The meeting was to consider Credit Suisse’s opinion on HLBB’s offer.
To recap, HLBB’s offer include the proposed distribution of the proceeds that would be received from HLBB to EONCap shareholders pursuant to EONCap’s acceptance of the offer.
EONCap said as the banking group’s board was awaiting clarification from Credit Suisse on the matter, the board noted that it also has deferred its decision on the proposed distribution of proceeds.
“An announcement on the details of the proposed distribution and the IFA opinion will be made once such opinion has been clarified and finalised,” it said yesterday.
The latest development confirms the story posted on The Edge Malaysia website yesterday afternoon when the stock was suspended, stating that the suspension was due to findings in the IFA report.
Earlier this month, EONCap engaged Credit Suisse as IFA and its opinion would be included in the circular to shareholders in relation to the HLBB offer.
On April 1, HLBB had returned with a new cash offer for the entire assets and liabilities of EONCap at RM5.06 billion which translates into RM7.30 per share, 20 sen higher than its previous two offers.
The new offer translates to 1.43 times book value based on EONCap’s shareholders’ funds of RM3.55 billion as at Dec 31, 2009 — slightly higher than its previous offers of 1.39 times.
EONCap was last traded at RM7.05 before it was suspended. The stock will resume trading today.
This article appeared in The Edge Financial Daily, May 18, 2010.
HLBB may ask EONCap to provide more
Written by Joyce Goh
Wednesday, 19 May 2010 11:27
PETALING JAYA: Hong Leong Bank Bhd (HLBB) may request EON Capital Bhd (EONCap) to make further provisions before the proposed acquisition of the latter is finalised.
In a written reply to The Edge Financial Daily, HLBB’s parent Hong Leong Financial Group noted: “There has been no change to our offer (for EONCap) of April 1, 2010. However, we may request the board of EONCap to make such provisions, as we consider appropriate, before completion to facilitate the integration and harmonisation of the two banks.”
If EONCap does make additional provisions and the offer price remains, it would inevitably enhance the valuation that HLBB has attached on the former. Based on the current offer of RM5.06 billion or RM7.30 per share, HLBB values EONCap at 1.43 times book.
It is believed that the provisioning relates to some loans in the Middle East. Officials close to EONCap have contended that the bank has provided for these loans in accordance with the guidelines set by Bank Negara Malaysia (BNM) while HLBB is of the view that the provisions set aside are inadequate.
“Each bank has different provision practices. So HLBB should not impose on EONCap as long as the amount is approved by BNM,” said an industry observer.
It was reported recently that following HLBB’s due diligence on EONCap, the acquirer could seek a lower price.
But this may not be the case judging from HLBB’s response yesterday that the offer price stays.
The EONCap board had on Monday sought further clarification from its independent financial adviser (IFA) — Credit Suisse — which was of the opinion that the offer was at the lower end of the valuation range.
“The IFA’s assessment suggests that based on four distinct valuation methodologies undertaken, the offer price is below or at the low end of the valuation range,” said a source.
Sources said that apart from the low valuation, the IFA also brought up points on the uncertainty in the completion timing as well in the final distribution to be returned to shareholders.
“There is the risk of capital repayment not being approved. This is because despite the disposal requiring only 51% shareholder approval, the capital repayment to shareholders requires 75% approval,” added the source.
The board in turn had requested that Credit Suisse in its report also deliberate on matters such as the changing financial landscape and the fact that there was no other offer on the table for EONCap apart from HLBB’s.
“Matters such as the shifting financial landscape coupled with new licences coming in … that and the impact it may have was not included much in the draft report. And that is why the board had asked for them to clarify those issues among other things,” said a source.
The board is scheduled to meet again tomorrow. According to an announcement by EONCap, the board will meet on or before Friday.
Earlier this month, EONCap engaged Credit Suisse as IFA and its opinion would be included in the circular to shareholders in relation to HLBB’s offer.
On the EONCap board seeking further clarification from Credit Suisse, AmResearch noted that there were three possible scenarios stemming from this.
“Regardless of the outcome of clarification between the board and Credit Suisse, we expect EONCap’s board to proceed to table the offer to shareholders. On this basis, we maintain our fair value of RM7.30 per share assuming the takeover will go through,” it said.
The second scenario has EONCap’s board deciding not to table the offer to shareholders and in such a case, the local research house said it would likely revert to its fundamental fair value of RM5.90 per EONCap share.
AmResearch’s third scenario sees EONCap’s board starting another round of negotiations with HLBB. “We believe this is unlikely, as HLBB has historically demonstrated its disciplined approach to acquisitions,” it noted.
EONCap closed at RM6.98 yesterday, down seven sen from before the stock was suspended on Monday.
This article appeared in The Edge Financial Daily, May 19, 2010.
PETALING JAYA: EON Capital Bhd's board of directors has accepted Hong Leong Bank Bhd's offer to acquire the former's assets and liabilities for a cash consideration of RM5.06bil or RM7.30 per share.
MIMB Investment Bank Bhd said on behalf of the board that this was after taking into consideration Credit Suisse Securities (M) Sdn Bhd's opinion that the offer was not fair from a financial perspective.
Credit Suisse was appointed as the independent adviser for the deal.
MIMB also said EON Capital's board member Ng Wing Fai's views would also be included in a circular to shareholders for the upcoming EGM.
Ng, whose Primus Pacific Partners (HK) Ltd held a 20.2% stake in EON Capital, has expressed disagreement with the board over the offer.
The investment bank said after taking into consideration Credit Suisse's opinion, the advice of the international adviser Goldman Sachs and all relevant aspects of the offer, the board has resolved that the proposed disposal was in the best interest of the bank.
It said the board would table a resolution at the EGM on the proposed disposal as well as the proposed distribution of the cash proceeds to shareholders.
MIMB said the proposed distribution of the cash proceeds arising from the disposal would be done in two parts - a special dividend estimated to be about RM3.30 billion based on EON Capital's audited financial statements as at December 31, 2009 and, a capital reduction exercise amounting to RM1.76bil.
