Maybank pays dearly for 20% stake in Pakistani bank

The generous $687 million investment in Pakistan's MCB marks Maybank's third acquisition this year.
Malaysia's Maybank will pay M$2.17 billion ($686.4 million) for a 15% stake in MCB Bank in Pakistan (previously known as Muslim Commercial Bank) with a right to buy up to a further 5%.

The agreed price is an 11% premium to MCBÆs most recently traded price and 5.1 times trailing book value. Maybank said the price was agreed based on the audited net assets of MCB on December 31, 2007 and qualitative considerations. Maybank is being advised by Aseambankers and JPMorgan.

The first tranche of 94 million shares, representing a 15% stake, will be acquired at a price of PRs470 ($7.2) per share from MCBÆs controlling shareholders Mian Umer Mansha, Mian Hasan Mansha and Muhammed Saleem, as well as from MCB employees pension fund, provident fund, provident fund trust and Adamjee Insurance. Merrill Lynch continues to cement its relationship with MCB after acting as sole bookrunner for its well-received issue of global depositary receipts in 2006 by acting as a sell-side adviser on the Maybank deal.

The price at which Maybank has struck the MCB deal is broadly in the same range as the prices paid by other banks for acquisitions in Pakistan. In March 2007 ABN AMRO acquired Prime Bank, which had 69 branches, at around four times trailing book value, and in August 2006 Standard Chartered paid 5.6 times book value to acquire Union Bank and its 65-branch network. A key difference is that the price paid by both these foreign banks incorporated a premium for control. Maybank is acquiring a minority stake in MCB with one board seat.

MCB is consistently rated one of the country's top banks, to the extent that investors buy MCB as a proxy for PakistanÆs growth. MCB's net profit has grown from PRs2.23 billion in fiscal 2003 to PRs16.22 billion in fiscal 2007 on account of strong growth in the economy and a very strong management team.

The deal with Maybank was done on a negotiated basis and, other than price, the cultural fit between the banks, a shared vision to grow Islamic banking and other businesses, and the chemistry between the two banks were key inputs, say sources close to the deal.

The controlling shareholders may also sell a further 5% at a price of PRs490 per share plus a holding cost, subject to a ceiling of PRs510 per share.

The deal is subject to approval by the Malaysian central bank, Bank Negara Malaysia and the State Bank of Pakistan. Maybank is seeking the right to repatriate in full any dividends it may receive from MCB or any cash it may realise from a subsequent sell-down of the stake. The deal is expected to be completed by June 2008.

MCB was founded in Pakistan in 1947 and is the fourth largest bank in the country with total assets of PRs413 billion. It has 1,026 branches, including eight Islamic banking branches in Pakistan and six outside the country.

"The proposed acquisition 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 market," Maybank said in its Bursa Malaysia filing on May 5.

The MCB deal follows close on the heels of two deals Maybank struck in March. In mid-March Maybank paid $133 million for a 15% stake in An Binh Bank in Vietnam. And later the same month it emerged the winner in an auction for Temasek's controlling interest in Bank Internasional Indonesia (BII). Maybank paid $1.1 billion to get a foothold in Indonesia. The BII deal, which was transacted at a 4.6 times trailing 2007 book value, was also termed generous by analysts who nonetheless agreed with the rationale.

Maybank is aggressively pursuing acquisitions to ensure it can participate in high growth overseas markets. But Maybank shares have been falling since it announced the BII deal and ratings agencies have put Maybank on watch. It last traded at M$8 a share.

In 2007 Malaysia witnessed large M&A volumes but sceptics suggested this was an aberration driven by a one-off transaction: Ananda KrishnanÆs $4.6 billion deal to delist his telecommunications firm, Maxis, followed by his induction of Saudi Telecom as a strategic investor in the privatised telco. Dealogic estimates that cross-border outbound M&A volume from Malaysia year-to-date is at $6.3 billion and has already surpassed the $6.1 billion worth of deals that were transacted in calendar 2007. Malaysia could well be one of the most active M&A markets in the region again in 2008.
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