RHB-AMMB merger likely to be all-share deal

Analysts say stock swap is simple, but the issue will be valuation

PETALING JAYA: In what would be the biggest banking deal in recent years if it materialises, RHB Bank Bhd and AMMB Holdings Bhd have announced that they have obtained approval from Bank Negara for the two parties to commence discussions for a proposed merger.

The banks said they envisaged that the transaction would be an allshare merger.

The banking groups, in their filings with Bursa Malaysia, said that the central bank vide its letter dated June 1 stated that it had no objection to the companies starting negotiations for a possible merger of their businesses and undertakings.

The approval is valid until Nov 30, 2017.

Following Bank Negara’s approval, both parties on the same day entered into an exclusivity agreement to negotiate and finalise pricing, structure and other relevant terms and conditions for the proposed merger. The exclusivity agreement will expire on Aug 30, 2017.

“There will be an automatic extension of the exclusivity period upon a submission being made to Bank Negara for an application for the approval of the Minister of Finance for the proposed merger by any or both of the parties, until the date of execution of the relevant definitive agreement(s) to effect the proposed merger,” the banks said in their respective filings with the stock exchange.

“It is envisaged that the transaction will effectively be an all-share merger,” the banks said in a joint statement.

Both RHB Bank and AMMB are currently trading at 0.9 times price - to-book value (BV) based on Tuesday’s closing prices, indicating that the swap ratio might not be too far from parity. But it would all depend on the premium RHB Bank is willing to pay assuming it’s the acquiring bank, said an analyst when contacted.

“A share swap is simple, but the issue will be valuation.

“From here on, both banks will have to conduct the due diligence to look at each other’s books to identify duplications and synergies that can be derived,” a banking analyst said.

The proposed merger between RHB Bank and AMMB will not change RHB Bank’s ranking by asset size as the fourth-largest bank in Malaysia but at a combined RM368.3bil, it would bring it very close to Public Bank Bhd’s RM389bil asset size.

AMMB is now the country’s sixth-largest lender in terms of asset size.

RHB Banking Group managing director Datuk Khairussaleh Ramli said the bank was confident that if the proposed merger took place, it would create greater synergy for the enlarged banking group, benefiting its shareholders, customers, employees and all other stakeholders.

“A merger of RHB Banking Group and AMMB will create a stronger fourth-largest banking group, creating scale and market leadership across key business segments,” he said in the joint statement.

Meanwhile, AMMB group chief executive officer Datuk Sulaiman Mohd Tahir said the proposed merger marked a new chapter that is opening in the banking group’s history, coming at a transformative time as it moved closer to achieving its Top 4 goals.

“I am positive that the proposed merger with RHB Banking Group will create a stronger business and financial presence. Our combined strength in key business segments, particularly in retail and investment banking, will bode well for us as we move forward to achieve our goal of becoming a formidable banking group,” Sulaiman said.

AMMB’s major owner is Australia and New Zealand Banking Group Ltd (ANZ) of Australia with a 23.78% stake, while its second-largest shareholder is founder Tan Sri Azman Hashim, who has an effective stake of 12.97%.

RHB Bank, meanwhile, is 41%owned by the Employees Provident Fund (EPF). The pension fund also holds a 10.04% stake in AMMB.

In May last year, ANZ wrote down its investment in AMMB to 0.9 times BV, which fuelled speculation that the Melbourne-based bank might be willing to relinquish its strategic stake in the bank for as low as one time BV, analysts said.

In an internal memo sent to RHB staff seen by StarBiz, Khairussaleh assured staff that should the discussions led to an agreement for a merger, the bank would take all the necessary steps to have a smooth integration of its business and operations with AMMB.

Meanwhile, it is understood that AMMB had also conducted a townhall meeting yesterday.

UOB Kay Hian in a report yesterday noted that the proposed merger would require a fair degree of cost rationalisation, given the degree of operational and revenue duplication between AMMB and RHB Bank. It noted that the combined entity would have 453 branches versus Malayan Banking Bhd’s 363 branches.

Both banking groups also have a sizeable corporate and investment banking franchise.

A potential merger between the two banks has been brewing for the past few years and resurfaced in recent months. Shares in RHB Bank and AMMB were suspended yesterday, pending the material announcement.

RHB Bank was last traded at RM5.39, while AMMB closed at RM5.21. Trading in the shares on Bursa Malaysia will resume today.