.jpg&h=684&w=1216&q=100&v=7c07f1e36c&c=1)
A year ago, RHB Capital was the prey; now it’s the predator. In June 2011, it was the target of Malaysian competitors CIMB and Maybank before both rivals aborted their bids. Yesterday, RHB announced a deal that should position it to rival CIMB’s domestic and regional franchise and become the country’s biggest investment bank by assets.
RHB and Malaysia’s OSK Holdings said that they had signed a conditional share purchase agreement for RHB to buy the whole of OSK Investment Bank for M$1.95 billion ($620 million). The acquisition is made up of M$147.5 million in cash and 245 million new RHB shares. The shares will be issued at M$7.36 each, for a value of M$1.8 billion.
OSK will become RHB’s third largest shareholder with about a 10% stake after the completion of the transaction, which is expected to take place in the fourth quarter of this year, once it has gained shareholder and regulatory approvals in all markets where OSK Investment Bank operates.
Under the leadership and main ownership of Ong Leong Huat, OSK Investment Bank has extended its operations during the past decade from a focus on domestic retail brokerage with an emphasis on small and medium enterprises, into a presence in Singapore, Indonesia, Hong Kong, Thailand and Cambodia, as well as setting up a representative office in Shanghai.
RHB Capital will also buy 100% of OSK Investment Bank (Labuan), as well as the remaining 20% in OSK Trustees and 20% in Malaysian Trustees held by OSK Holdings for M$26.8 million. In addition, RHB will pay M$12.5 million for the 59.95% in Finexasia.com not currently owned by OSK Investment Bank.
So in aggregate, the price tag is M$1.99 billion.
Credit Suisse is advising RHB and OSK is advised by Goldman Sachs.
The price of the new shares was derived after establishing the five-day volume weighted average market price of M$7.42 of RHB up to 28 September 2011 — the last market day before the two banks announced their application to Bank Negara Malaysia to discuss a possible merger. It was then adjusted for a 2011 interim dividend.
There is a closing adjustment event clause with a lower threshold of M$6.75 per RHB share, below which RHB would need to compensate OSK, and a higher threshold of M$7.95, above which the number of shares offered would be tweaked.
RHB’s share price closed at M$7.4, and OSK’s at M$1.74, before being suspended for the announcement.
According to RHB’s statement to Bursa Malaysia yesterday, the purchase consideration implies a multiple of 1.77 times on OSK Investment Bank’s book value of M$1.1 billion, based on its unaudited net assets of M$1.1 billion reported on September 30, 2011 and represents 18.9 times the past 12 months’ normalised earnings adjusted for one-off costs.
Similar Malaysian investment banking and broking firms to OSK are trading at significantly lower multiples than RHB is paying for the firm. ECM Libra and Huang-DBS both trade at 0.7 times, KAF-Seagroatt and Campbell at 0.9 times and Apex Equity at 0.6 times, according to a table of comparables listed in the appendix to the RHB announcement.
RHB, whose main shareholder is Malaysia’s Employees Provident Fund (with a 49.9% stake), expects the merged banks to enjoy cost synergies as well as the benefits from combining businesses that target distinct customer segments. The statement posted by RHB noted that there are few overlapping businesses, so minimal staff redundancies are expected.
“This acquisition allows RHB Banking Group to increase our participation in the strong economic fundamentals in ASEAN and Hong Kong/China. In addition, the combination of complementary businesses means we will have an opportunity to build a full coverage investment bank across all levels of retail and wholesale clientele and expand geographies to serve our clients better,” said Mohamed Khadar Merican, chairman of RHB Capital and RHB Investment Bank, in a joint statement with OSK yesterday.
Meanwhile, OSK Investment Bank hopes to access RHB’s wide-ranging banking platform to provide more products and services to its clients.
“The combination ... will create a leading investment bank with a strong position in mergers and acquisitions, brokerage, equity capital market and debt capital market. Furthermore, OSK Investment Bank will be able to leverage on the financial strengths and the commercial banking franchise of RHB Banking Group to expand in the region,” said Nik Mohamed Din, chairman of OSK Holdings.
The deal follows CIMB’s purchase of part of Royal Bank of Scotland’s regional business in April.
