Published by Asia Asset Management – 28th Aug 2017
In early June, the Malaysian market was abuzz with news of a proposed merger between AMMB Holdings, the parent company of AmBank, and RHB Banking Group (RHB). The deal would have created the largest fund manager, by AUM, in the country, AmBank’s Group Chief Executive Officer Sulaiman Tahir said at the time.
Fast forward to August 22, and all hopes for a merger were dashed. In a filing to the Kuala Lumpur Stock Exchange (KLSE), AmBank said that “after much deliberation and negotiations”, the two sides “have not been able to reach an agreement on mutually acceptable terms and conditions” for the merger. No specific details were provided. The announcement came just a week before the exclusivity agreement between the two companies signed on June 1 was due to expire. This agreement would lapse immediately, Mr. Sulaiman said in a press release.
Although the general market sentiment had been optimistic that the merger would go through, some observers had remained cautious following RHB’s previous failed merger talks with CIMB Bank and the Malaysian Building Society in 2015.
According to an analyst familiar with the matter, the merger between RHB and AMMB Holdings would have had to get off the ground relatively quickly in view of the current slow growth in the Malaysian banking sector:
“The merged entity would have had to focus on cost rationalisation to improve ROE (return on equity). The main concern would have been how much time will it take for all the restructuring to be complete, and (the) focus to return on core operations,” the analyst tells Asia Asset Management.
Valuations may also have been a stumbling block.
“We think that aside from common shareholder interests and potential synergies, pricing is a key hurdle on which recent transactions have failed.
This is because shareholders are still hoping for structurally higher P/B (price-to-book) valuations, which were benchmarks in past successful transactions,” the analyst says, adding that the current P/B is around 1.2 times versus 2 times or more previously.
“We think for future consolidation to happen, shareholders might have to compromise on lower P/Bs in view of the lower ROEs.”
If the merger had gone through, the combined company would have been worth 368 billion ringgit (US$85.9 billion), making it the fourth largest bank in Malaysia by asset size. It would also have been the third largest by market share in domestic loans and deposits, after Maybank and Public Bank.
