Biggest Malaysian Banking Merger Scrapped on Economic Conditions

CIMB Group Holdings Bhd., RHB Capital Bhd. and Malaysia Building Society Bhd. agreed to scrap a three-way merger that would have created Malaysia’s largest banking group, citing current economic conditions.

“The decision to cease discussions was arrived at after a detailed review of potential synergies that could be realistically delivered, especially in the current economic environment,” Tengku Zafrul Tengku Abdul Aziz, acting Chief Executive Officer of CIMB Group, said in a joint e-mailed statement today.

Terms for the deal, announced in October, no longer make sense as the industry outlook deteriorates, people familiar with the matter said yesterday. The combination would have been Malaysia’s largest ever and was the biggest Asian merger transaction announced in the fourth quarter, data compiled by Bloomberg show.

The deal would have created a group with 637.9 billion ringgit ($177.5 billion) of assets, surpassing the 612 billion ringgit held by of the nation’s biggest lender Malayan Banking Bhd., the data show.

CIMB shares closed 2.9 percent lower at 5.75 ringgit, in Kuala Lumpur today. RHB retreated 1.9 percent to 7.65 ringgit, while Malaysia Building Society gained 4.9 percent to 2.16 ringgit. The three banks have a combined market value of more than $20 billion.

Share Prices

The proposed deal was structured as a reverse merger, with smaller RHB to issue shares to acquire CIMB, Malaysia’s third-biggest bank by market value. That method was seen as a way to overcome potential opposition from RHB’s second-largest shareholder, Aabar Investments PJSC, which paid 10.80 ringgit a share when it bought its stake in 2011.

CIMB had fallen 24 percent through the end of last week since the deal was announced, double RHB’s drop. That disparity made the merger less attractive to RHB shareholders. Adding cash to woo RHB investors wouldn’t have been “palatable” to CIMB, Desmond Chng, an analyst at Maybank Kim Eng, wrote in a report this week.

The proposal faced another hurdle in late October, when Malaysia’s stock exchange ruled that pension manager Employees Provident Fund couldn’t vote on it. The fund is RHB’s largest investor with a 40.9 percent holding, and also owns stakes in CIMB and Malaysia Building, data compiled by Bloomberg show.

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