MaybankÆs $2.7 billion BII deal stumbles again

MalaysiaÆs central bank tells the countryÆs biggest lender to cut the offer price or cancel its bid for Bank Internasional Indonesia.
Maybank has been told by Bank Negara Malaysia, the countryÆs central bank, to reduce the price of its $2.7 billion bid for Bank Internasional Indonesia (BII).

Maybank said in a statement that Bank Negara had told it ôto obtain a new agreement on a purchase price that will not result in substantial impairment under international reporting standards that would impact the fundamental soundness of Maybankö.

Maybank, MalaysiaÆs largest bank by assets, had been due to complete its purchase of a 55.5% stake in BII for $1.5 billion last Friday, and follow with a tender offer for the rest of the shares. The acquisition together with the tender offer (if fully accepted) would have resulted in a total cost of $2.7 billion.

The 55.5% stake is owned by Fullerton Financial Holdings, a unit of Singapore investment company Temasek, and Korea's Kookmin bank through a company called Sorak Financial Holdings. Fullerton owns 75% of Sorak and Kookmin owns the rest.

However, Fullerton Financial Holdings said on Saturday that Maybank had rejected an improved deal for the purchase of the majority stake in BII that would have amounted to a price reduction of $165.9 million. Fullerton and Kookmin can exercise rights under the Share Sale Agreement that might lead them to make claims against Maybank, which stands to lose a M$480 million ($140 million) deposit.

Many investors had thought that the original deal, agreed in March, over-priced the Indonesian bank. It valued BII at about 4.6 times book value, which was a lot more than the 1.98 times book value of IndonesiaÆs leading bank, Bank Mandiri, and of Maybank's own price-to-book multiple of 2.3 times. MaybankÆs shares have fallen 23% since March 26, when the lender said it planned to buy BII, over concerns that it was overpaying for the acquisition.

On the other hand, analysts and fund managers have expressed concern about Bank NegaraÆs repeated interference in a commercial transaction, and fear that it posed risks for future cross-border M&A transactions involving Malaysian banks.

Bank Negara had previously blocked the acquisition after Indonesian regulators said Maybank would have to sell part of its stake in the future to comply with new rules designed to raise the shareholdings of Indonesian investors. The central bank then gave the deal the green light on September 16 after Indonesia's capital markets regulator agreed to extend the deadline for Maybank to cut its stake. In the latest move, it told Maybank that the terms needed to be revised û that is, the price reduced û because of turbulence in the global financial markets.

BII's share price fell by one-third in afternoon trading Friday and Maybank dropped 0.7% after both stocks were suspended from morning trading.

Regional ambitions
Critics have argued that government-owned Maybank may have succumbed to peer pressure to expand abroad so urgently, as close rivals like Bumiputra-Commerce Holdings and Public Bank had already made overseas acquisitions. As a result, they say, it has paid too much.

In early May, it paid $687 million for a 15% stake in PakistanÆs MCB Bank, with an option to buy a further 5%. The deal was struck at a generous 11% premium to MCBÆs stockmarket price and at 5.1 times trailing book value, which was in line with the prices paid for Pakistani banks by ABN AMRO and Standard Chartered in the past two years. But unlike the two European banks, Maybank only acquired a minority stake, not control.

As an affirmation of its ambitions, Maybank stated in its Bursa Malaysia filing on May 5 that "the proposed acquisition [of MCB] will enable Maybank to further expand its regional presence in key growth markets and to continue with its efforts to establish itself as a financial services leader in the regional marketö.

In March, Maybank also agreed to pay Vnd2.1 trillion ($133 million) for a 15% stake in An Binh Bank in Vietnam, but before that deal was closed earlier last week, Maybank was able to renegotiate a price reduction in light of the change in the economic environment in Vietnam. The new price is Vnd1.58 trillion ($97 million). It is possible that it was this that prompted Bank Negara to request a similar renegotiation of the BII deal.

Maybank is the largest bank in Malaysia with assets of over $66 billion, spread across 361 domestic branches and 88 international outlets. It has significant personal banking operations in Brunei, the Philippines and Singapore, a presence in other Southeast Asian markets, and also in Hong Kong, London and New York. It was also the first Malaysian bank to be granted the right to establish a branch office in China. Through its subsidiary, Etiqa, Maybank has a substantial insurance business û both conventional and, since 2002, takaful (ShariÆah-compliant) û and its other Islamic finance operations are on an expansionary path. Its Aseam group of companies engages in a wide range of corporate and investment banking activities.

Although Maybank has been aggressively pursuing acquisitions in order to participate in high-growth overseas markets, there is clearly some scepticism that it is doing it the best way. The bankÆs share price has been in free-fall since it announced the BII deal and ratings agencies have put it on credit watch. ôMaybank seems to be moving too quickly and paying too much, as if it is frightened that it has been left behind. It doesnÆt exactly give a sense of prudent planning,ö says a banking analyst at the Kuala Lumpur branch of an international bank.

But, Surachet Chaipatamanont, CEO of Aseambankers, MaybankÆs investment banking arm, said in the summer that ôMaybankÆs recent acquisitions come after a long process of analysis and planning around the target markets. They are the result of the groupÆs deliberate strategy to enter markets with high populations and low penetration of banking servicesö.
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