* CIMB aims to acquire RHB and Malaysia Building Society
* The new bank would be Malaysia's largest by assets
* Maybank, others expected to feel pressure to acquire too
(Adds CIMB, RHB confirming in merger talks)
By Yantoultra Ngui and Al-Zaquan Amer Hamzah
KUALA LUMPUR, July 10 Malaysia's CIMB Group
Holdings Bhd is seeking to acquire two lenders to
create the country's biggest bank in a move that is likely to
push larger rival Maybank and others in the region to bulk up
CIMB, the nation's second-largest bank, is likely to offer
an all-stock deal to buy RHB Capital Bhd and Malaysia
Building Society Bhd although details have yet to be
hammered out, a source familiar with the matter said.
The three banks confirmed on Thursday they had obtained
approval from Bank Negara Malaysia, the country's central bank,
to begin merger talks.
The "three parties have entered into a 90-day exclusivity
agreement to negotiate and finalise pricing, structure, and
other relevant terms and conditions for a proposed merger of the
three entities and the creation of a mega Islamic bank," the
three banks said in a statement.
The statement came after shares in all three banks were
suspended on Thursday pending an announcement. Shares will
resume trade on Friday.
The proposal comes ahead of a planned partial integration of
Southeast Asian economies that is due to begin by the end of
next year, with countries in the 10-nation alliance keen to
build national champions to bolster their banking systems.
CIMB has been the most acquisitive of Malaysia's banks and a
deal would be the last major move by CEO Nazir Razak, brother to
the prime minister, before he relinquishes the helm in September
after 15 years.
A successful deal would see CIMB's assets climb to 614
billion ringgit ($195 billion), 6 percent bigger than Malayan
Banking Bhd (Maybank), and could help with pricing power in an
intensely competitive domestic market.
"We believe that we can structure a value creating
combination between our three groups and that is worth taking
the next steps," Nazir told employees according to an internal
memo obtained by Reuters.
"I would urge everyone to look forward to the possibility of
a significant scale change for us overall, but specially in
Malaysia and Singapore, with the caveat that we have only just
But some analysts warned CIMB may pay too much and that
there could be too much overlap between CIMB and RHB - the
nation's No. 4 bank, as they have similar portfolio mixes and
RHB and Malaysia Building Society have a combined market
capitalisation of around $9 billion, almost half of CIMB's $19
billion market value.
"We opine that such a merger could be value destructive to
the merged entity given the degree of operational and revenue
duplications between CIMB and RHB Capital," brokerage UOB
KayHian said in a client note.
Representatives for CIMB did not respond to requests for
comment while RHB said there was no further update at this
stage. Representatives for Malaysia Building Society were not
immediately available for comment.
PRESSURE ON MAYBANK
A deal would make CIMB the fourth-largest bank in the
Association of Southeast Asian Nations (ASEAN) after Singapore's
three biggest lenders. By comparison, the largest, DBS Group
Holdings, has assets of $337 billion.
Nazir is the architect of the bank's expansion over the past
decade that saw it buy domestic rival Southern Bank, the Asia
equities and investment banking business of RBS as well
as lenders in Indonesia and Thailand.
A new deal is bound to heap pressure on Maybank to acquire a
rival too, analysts said, with some speculating that Public Bank
Bhd could fall within its sights.
"Maybank might want to take over Public Bank, which compared
to RHB Capital, is much better in terms of asset quality, and is
well-managed and well-capitalised. This makes Public Bank a
vulnerable target," said Ei Leen Tan, an analyst with Affin
A key player in any acquisition by CIMB of its two smaller
rivals will be the Malaysian state pension fund, the Employees
Provident Fund (EPF). It owns 41.3 percent of RHB and 65 percent
of Malaysia Building Society. The fund also owns a 14.5 percent
stake in CIMB, according to Thomson Reuters data.
Another will be Abu Dhabi-based Aabar Investment which
bought a 25 percent stake in RHB for 10.80 ringgit per share in
2011 - regarded as a particularly high valuation. Both CIMB and
Maybank walked away from a deal to buy RHB in 2011 after failing
to secure support from Aabar. The state fund currently owns
nearly 22 percent of RHB.
The EPF said in an email it would not be able to comment on
the matter as it is very preliminary in nature and specific
details are still pending. A spokesman for Aabar said it doesn't
comment on any of its investments.
While plans for ASEAN integration are widely expected to
suffer delays, bankers and analysts expect more deals done as
the banks from Singapore, Malaysia and Indonesia prepare for a
more competitive landscape.
"This will give impetus to other countries in the region to
think of something similar," said a M&A banker who advises on
($1 = 3.1705 Malaysian Ringgits)
(Additional reporting by Saeed Azhar in Singapore, Trinna Leong
in Kuala Lumpur and David French in Dubai; Writing by Denny
Thomas; Editing by Edwina Gibbs and Mark Potter)