Jan 14, 2015

    CIMB, RHB set to 'call off' $26.7b merger


    A US$20-billion (S$26.7-billion) merger to create Malaysia's biggest bank is about to collapse after CIMB Holdings and RHB Capital failed to agree on new deal terms, sources said yesterday.

    Their merger with Malaysian Building Society Berhad (MBSB) would have formed a banking group with assets of about US$190 billion, eclipsing Malayan Banking and making it South-east Asia's fourth-biggest bank.

    The state-backed deal was part of Malaysia's ambitious plan to promote its firms as regional champions. The collapse of the deal is a major blow for CIMB chairman Nazir Razak, brother of Malaysian Prime Minister Najib Razak.

    Mr Nazir has spearheaded the bank's expansion over the past 16 years, snapping up a domestic rival, lenders in Indonesia and Thailand, and businesses owned by Royal Bank of Scotland.

    All three firms said in separate stock market filings late yesterday that talks were ongoing.

    CIMB and MBSB said that they would hold board meetings today to discuss the merger. "Should there be any material development on the proposed merger which warrants disclosure, the appropriate announcement will be made on Bursa Securities accordingly," CIMB said.

    However, sources said that an announcement cancelling the deal could come as early as this evening, after the CIMB board meeting.

    CIMB shares had tumbled more than 26 per cent between the launch of the deal in early October and Monday, as investors questioned CIMB's ability to extract synergy from the deal.

    "We have been cautious on the mega-merger proposal, especially on synergy creation vis-a-vis the high merger cost," Tan Ei Leen, an analyst with Kuala Lumpur-based Affin Hwang Capital, wrote in a note to clients on Monday.

    The CIMB share-price fall reduced the deal's appeal, prompting RHB to seek an improved share swap ratio, and possibly cash, sources said.

    A central bank directive against CIMB retrenching people for 24 months after the merger also posed difficulties. Yesterday, CIMB shares climbed 14.3 per cent as investors breathed a sigh of relief that the deal appeared set to fall through. RHB gained 0.9 per cent, while MBSB fell 5.9 per cent. Malaysia's benchmark share index was up 0.8 per cent.

    A failed merger could raise concerns about Malaysian bank governance, coming after state investor 1Malaysia Development missed the repayment of a RM2-billion (S$7.5-billion) bridge loan that was due last month.