KUALA LUMPUR: Shares of RHB Bank and AMMB Holdings (AmBank) fell on Friday on concerns that a potential merger between the two lenders in Malaysia’s biggest ever banking deal would create little value for investors.
RHB and AmBank said on Thursday they are starting merger talks to form a group worth about US$9 billion (RM38.59 billion). Sources have told Reuters that RHB would be the acquirer in the potential merger, reinforcing its ranking as the fourth largest Malaysian bank by assets.
RHB confirmed in a call with analysts on Thursday that it would be the acquirer in the all-stock deal, and indicated it would pay AmBank shareholders a one-time multiple of AmBank’s book value, according to five analysts who participated in the call.
That valuation is not far from AmBank’s current market worth of US$3.7 billion, which analysts say is a 0.9 to 1-time multiple.
“I see this deal as a negative for AmBank shareholders unless they can bargain a cash portion in the deal,” said Hong Leong Investment Bank analyst Khairul Azizi Kairudin, adding that he was not optimistic the deal will be completed if it is a share-swap agreement.
The merger would need approval from 50% of RHB shareholders for the deal to go through and 75% of AmBank shareholders, RHB told analysts on the call.
Shares of AmBank fell as much as 1.7% on Friday, while RHB’s shares slumped as much as 4.3%. The broader Malaysian stock market was up 0.7%.
One AmBank shareholder told Reuters he was unlikely to take up the offer at the valuation RHB was proposing.
“Public-listed companies should come with some premium,” he said, declining to be named citing sensitivity of the matter.
AmBank’s top shareholders are keen to sell their stakes. ANZ Banking Group, which owns a 24% stake, has been weighing a sale of its stake since early last year, sources have said. AmBank chairman Azman Hashim, the second biggest shareholder with a 13% stake, has expressed his intention to pare the shareholding, according to sources.
Analysts also said on Friday that for the RHB-AmBank merger to bring significant benefits to the combined company, the lender will have to cut costs substantially, a process that could take years.
For the merged bank to realise an increase in return of equity from the current 8.3% to 10%, it will have to shed about 18% of its combined headcount of roughly 25,000 staff and 20% of other operating costs, said UOB Kay Hian analyst Keith Wee Teck Keong.