Bidding war for Malaysia's RHB ends, but who won?

RHB's major shareholder accepts a $655 million offer from the Employees Provident Fund backed by Kuwait Finance House. Meanwhile, rival EON tables a higher bid.
MalaysiaÆs Utama Banking Group, which owns 33% of Rashid Hussain Berhad (RHB), announced yesterday that it had accepted a revised offer by the Employees Provident Fund (EPF) to acquire its stake in the banking group.

The EPF will pay a total of M$2.3 billion ($655 million) to Utama and will also make an offer for all outstanding shares at a price of M$4.80 per share. Kuwait Finance House issued a statement subsequently suggesting it was acting in consortium with the EPF.

Meanwhile, rival bidder EON Capital informed the stock exchange late yesterday that it has upped its offer to M$5 per share.

The EPF is the second largest shareholder in RHB with a 32% stake. Earlier this week, it bid M$2.2 billion to buy Utama's stake in the business and then upped this to M$2.3 billion. The second bid was accepted by Utama.

RHB is a Kuala Lumpur Exchange listed investment holding company which indirectly controls RHB Bank, the fourth largest bank in Malaysia by assets. Utama owns a 33% stake in RHB. The RHB group, and specifically RHB Bank, is in need of capital to meet capital adequacy requirements with bond redemptions in 2007 a pressing problem.

The EPF first expressed an interest in buying Utama's stake in RHB back in June 2006, but Utama declined the EPF offer on grounds that it did not capture the value of the stake. RHB then went into play with other bidders. On February 7, the Kuwait Finance House put in its first bid of M$2.16 billion which was quickly followed by a higher bid from EON Capital.

Analysts have speculated about why the EPF is keen to make the acquisition. The value of the existing EPF holding in RHB is lower than its acquisition price, making it a net loss position for the EPF. The EPF will have to invest further in RHB to restore it to financial health. Further, the rationale for the EPF to own and operate a bank is not clear. It now emerges that the EPF is backed by Kuwait Finance House. Middle Eastern banks are aggressively entering new Asian geographies for growth as their traditional markets become over-banked. Kuwait Finance House has stated plans to create the world's largest Islamic bank, if it is successful in its bid for RHB.

Meanwhile, EON Capital seems set to continue the fight. EON Capital is smaller than its target, leading analysts to comment that it is taking on a challenge with the acquisition. It is also speculated that regulators are nervous about its ability to make the capital infusions necessary to turn RHB around, hence the decision by Utama to award the stake to the EPF.

Early yesterday it seemed this bidding war had ended in favour of the EPF. Then it emerged that Kuwait Finance House was backing the EPF. And a higher bid by EON is still on the table. Expect a few more rounds to be fired.
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