KUALA LUMPUR (May 29): RHB Capital Bhd (RHBCap) will be paying RM1.95 billion for OSK Investment Bank Bhd (OSK IB), valuing the latter at close to 1.8 times book, in its bid to create the country's largest investment bank by assets when the exercise is completed by 4Q.
"We are creating one of Malaysia's largest, most complete investment banks and the number one in terms of broking, both in terms of volume and value [traded]," RHBCap group managing director Kelle Kam told a briefing on Monday.
On Monday, both companies signed an agreement that will see RHBCap acquire 100% of OSK IB from OSK Holdings Bhd for a purchase consideration of RM1.95 billion, comprising RM1.8 billion in the form of 245 million new RHBCap shares and RM147.5 million in cash.
The new RHBCap shares will be issued at RM7.36, which was arrived at after taking into consideration the five-day volume weighted average market price of RM7.42 of RHBCap shares up to Sept 28, 2011 — the last market day prior to the announcement of the application to Bank Negara Malaysia to commence negotiations on the possible merger of RHB Banking Group and OSK IB dated Sept 29, 2011.
Kam said the purchase consideration implies a multiple of 1.77 times of OSK IB's RM1.1 billion book value as at Sept 30, 2011, and represents a multiple of 18.9 times its last 12 months' normalised earnings.
In addition, RHBCap will acquire 100% of OSK Investment Bank (Labuan) Ltd's shares as well as the remaining 20% stake in OSK Trustee Bhd and 20% in Malaysian Trustees Bhd held by OSK Holdings Bhd, for a cash consideration of RM26.8 million.
As part of the transaction, RHBCap will also acquire 59.95% in Finexasia.com Sdn Bhd not currently owned by OSK IB for a cash consideration of RM12.5 million. This brings the total aggregate purchase consideration to RM1.99 billion.
With OSK IB, Kam said RHBCap will have immediate access to the Asean and Hong Kong/China markets through its integrated regional platform. "One of our goals in the short term is to get our contribution from outside Malaysia to at least 10%," he said.
On who would be leading the merged entity, Kam said the decision has not been made yet. "Give us another three weeks and we will speak about it."
Kam said the merged entity will have a workforce of over 4,000 people. There are no plans for any headcount reduction as the businesses of both companies complement each other pretty well, he added.
After the transaction, Kam said OSK Holdings will become the third largest shareholder in RHBCap with a stake of approximately 10%.
Asked if OSK Holdings has the intention to raise its stake in RHBCap, Ong Leong Huat, director and major shareholder of OSK Holdings said, "I don't think we have come to that stage as to raise or to reduce. As far as now, I think we will hold this as a long term investment.
"I think [RHBCap] are good partners, we have great faith in them, that's why we accepted shares instead of cash. I think RHB Financial group has a good future, that's why we would put our money into it instead of cashing out."
RHBCap's two largest shareholders, the Employees Provident Fund (EPF) and Aabar Investments PJS will see their stakes dilute slightly, from about 45% to 40.8% and from about 24.8% to 22.5%, respectively.
Kam expects the merger to be slightly dilutive to RHBCap's earnings per share next year as there will be issuance of new shares for the transaction. However, he expects the merger to be earnings accretive after 18 months.
Asked why there was a delay in the merger, Kam said, "We were very engaged to put together the best possible outcome for both parties, so there were obviously a lot of discussions and negotiations. Then leading up to the central bank, I think the authorities were very thorough in their evaluation of the transaction."
RHBCap shares closed one sen higher to RM7.42 on Monday, while OSK Holdings closed four sen higher to RM1.74.
This story appeared in The Edge Financial Daily on May 29, 2012.