CIMB’s acquisition of a controlling stake in Bank of Commerce from San Miguel Corp and various minority shareholders has been scrapped after the parties failed to reach an agreement on new terms, according to a statement issued by CIMB.
The acquisition would have seen Malaysia-based CIMB buy a 60% stake in the Philippine lender at a total cost of Ps12.2 billion ($277 million at today’s exchange rate). It was CIMB’s first move into the Philippines, which is the only Asean country where it still doesn’t have an on-the-ground presence.
When the deal was first announced in early May 2012, CIMB’s CEO, Nazir Razak said that an expansion into the Philippines is a very natural one for an Asean universal bank like CIMB and for a variety of reasons, including the long-term growth prospects of the economy, the stabilising political situation and pro-business administration, increasing trade links with other Asean countries and an under-penetrated banking market, the country “has the potential of becoming very important” to CIMB.
However, that will now have to wait a bit longer.
In its brief statement, CIMB noted that the original sale and purchase agreement with three San Miguel entities lapsed in December 2012, while the agreement with various minority shareholders lapsed in February this year. Since then, the parties have been in negotiations with the aim of reaching a new agreement, but eventually came to the conclusion that they wouldn’t be able to do so.
It isn’t entirely clear what the sticky points were, although local media has been referring to rules that bar foreigners from owning land in the Philippines. As per earlier announcements issued by CIMB, the Philippine central bank approved the acquisition in November last year subject to certain conditions being met. The Malaysian central bank gave its approval the same month.
San Miguel confirmed in its own statement that the parties have made a mutual decision not to proceed with the proposed transaction, but didn’t elaborate on the reasons.
CIMB has been expanding aggressively in the 10-country Asean region and is currently the fifth largest universal bank in the region in terms of assets. Meanwhile, its acquisition of some of Royal Bank of Scotland’s businesses in Asia-Pacific last year has helped boost its pan-Asian foot-print in investment banking and equity brokerage that spans Hong Kong, China, Korea, Taiwan, India and Australia as well as Southeast Asia.
The Philippines is the one noticeable gap and the acquisition of Bank of Commerce would have been the first step towards filling that. To be sure, as the 16th largest bank in the Philippines, Bank of Commerce is quite small, but Nazir noted when the deal was first announced that it has the potential of growing quickly thanks to a low loan-to-deposit base and high capital ratios. He also saw immediate potential for CIMB to deliver banking and capital markets solutions to Philippine companies through Bank of Commerce.
But it was not to be and now it will have to look elsewhere for similar benefits. The CEO has already indicated that another acquisition is his preferred option.
“If we don’t get BOC we will be short of the Philippines and will look for other M&A opportunities,” he told FinanceAsia in early June. Outside the Philippines, the platform feels quite complete today, he added.
CIMB reported 37% year-on-year growth in net profit in the first quarter to M$1.39 billion ($428 million) on the back of a 21% increase in revenues. The bottom line was supported by a capital gain from the sale of its 51% stake in CIMB Aviva, but the bank also took M$200 million of restructuring charges that it said will result in long-term cost benefits. Excluding these one-off items, the net profit was up by 4.2%.