CIMB takes over sibling

Malaysia''s premier investment bank to take over under-performing Bumiputera Commerce Bank, positioning itself for the next round of Malaysian bank mergers.

It was announced in Kuala Lumpur yesterday (June 6) that the country's premier local investment-banking group CIMB will take over its affiliate, Bumiputera Commerce Bank (BCB). Both CIMB and BCB are part of the Commerce Asset Holdings Berhad (CAHB) banking group, the second largest bank group in Malaysia by asset size.

The deal essentially sees the well performing CIMB take over the underperforming BCB through a series of sale and purchase agreements. Firstly CIMB will form a new company, which will buy all the assets and liabilities of CIMB as well as 100% of BCB.

The new company will pay for this by issuing new shares to CIMB and CAHB. CIMB will then own 24% of the new company and CAHB will own the remaining 76%.

Once this has been completed, CAHB will acquire CIMB's 24% stake in the new company for RM5.3 billion in cash ($1.4 billion). CIMB will then distribute all its cash to its shareholders through a capital repayment exercise. CIMB's minority shareholders will then get either RM 5.50 a share or they can get new CAHB shares valued at RM4.80 a share.

This means the deal is paying a premium of 10.7% over CIMB's five-day average share price, while CAHB shares are being priced at a 4.3% premium to their five-day average. If all of CIMB's minorities opt for cash payment, the total that CAHB will have to pay is RM1.6 billion.

This complex series of transactions essentially puts CIMB in charge of the overall group. This is demonstrated by the appointment of CIMB's CEO Nazir Razak as the head of a new three person executive committee that will run BCB. The other two members of that committee are Azmi Abdullah, the CEO of BCB, and Shukri Hussin the bank's COO.

The deal will see the new universal bank be able to offer the full range of commercial and investment banking products. "We strongly believe that combining CIMB's successful franchise and investment banking leadership with BCB's extensive network and customer base will create a leader in financial services, not just in Malaysia but in the region," says Tan Sri Desa Pachi Chairman of CAHB.

The deal will also position CAHB in a much more unified way in the coming wave of consolidation that analysts expect to engulf the Malaysian banking market this year.

Indeed, CAHB is one of the most well connected banking groups in the country - state investment agency Khazanah is its major shareholder, while CIMB CEO Nazir Razak is brother of the deputy prime minister. The government has made it clear that it wants to see a further round of market-led bank mergers in Malaysia.

It will not force them like last time, but has been taking a number of steps to encourage the banks to merge. It is therefore clear that this internal sale and purchase is being undertaken prior to the next round of mergers among the 10 local baking groups. CAHB is positioning itself to be a consolidator not a consolidatee.

"This proposal... recognizes that in order to compete against global players in investment and commercial banking, at home and in the region, we must optimize scale of operations," says Dato' Nazir Razak at the announcement yesterday. "Furthermore, with this exercise, the group will be primed to capitalize on potential opportunities in banking industry consolidation."

Advisers on the deal were CIMB, JPMorgan and Malaysian International Merchant Bankers. Legal advice came from Kadir, Andri, Aidham and Partners. The deal is expected to close in the fourth quarter of 2005.

For more information on what is causing the next round of Malaysian bank mergers and who might be merging with whom, see the June issue of FinanceAsia magazine.

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