Proposed mega bank merger called off

KUALA LUMPUR: CIMB Group Holdings Bhd, RHB Capital Bhd (RHBCap) and Malaysia Building Society Bhd (MBSB) have ceased discussions on the proposed merger and creation of a mega Islamic bank in light of current economic conditions, said the banks in a joint statement yesterday.
CIMB Group and RHBCap have withdrawn their application to Bank Negara Malaysia, and the exclusivity agreement entered into by the parties has been terminated with the cessation of talks.
"We had thoroughly deliberated the merger, and whilst we remain convinced that the combination of our three franchises follows sound strategic logic, we ultimately were not able to arrive at a value creating transaction for all stakeholders. 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," said CIMB Group acting group chief executive Tengku Datuk Zafrul Tengku Abdul Aziz.
RHBCap group managing director Kellee Kam said the discussions were undertaken on the premise that it would be able to arrive at a value enhancing proposal for its stakeholders and bring it to its respective shareholders.
"Protecting and creating stakeholder value is paramount to all parties and given the changes in environment we could not conclude a case to proceed further. Nonetheless, we would like to thank all the parties involved in the discussions for the time and effort spent. We wish CIMB and MBSB well in all their future endeavours," he said.
"The opportunity to be a part of a mega Islamic bank was an exciting one for us. Given that the discussions have ceased, we can now continue to focus on the strength of our franchise and achieving the goals that we have originally set for ourselves. We thank everyone involved for their hard work," said MBSB president and CEO Datuk Ahmad Zaini Othman.
Earlier yesterday before the announcement was made, CIMB Group chairman Datuk Seri Nazir Razak said that there have been intense discussions over the past few weeks on whether it would proceed with the merger or not, and the decision would be based on the validation process that the three companies have gone through.
"Firstly when we began, we said in the first announcement that we would like to get approvals to negotiate with RHBCap and MBSB on the merger. Then we said that post negotiations, we have based on publicly available information, a prima facie phase that there could be a value creating merger and there after we would go into detailed discussions to verify that case, both with MBSB and RHB.
"So management has been in intense discussions over the past few weeks. It has always been the plan that some time in January, we would then deliberate at the various boards to take a final decision whether we would proceed with the merger or not," he told reporters at the sidelines of a special report jointly produced by CIMB and The Economist.
Nazir said it had to validate the business case for the merger, that is whether the merger can create value, based on the regional assumptions, the terms it had negotiated and the economic environment.
"As you know, the economic environment has changed. So all those will be taken into account in the board meetings that are coming on the part of all three boards to decide on whether we want to proceed or not."
He also dismissed reports that said RHBCap seeking a cash portion in the merger deal would likely lead to the deal being called off, adding that the merit of proceeding with the deal or not are being evaluated based on a set of terms that have been put forward.
Commenting on the value creation from the possible merger, Nazir said the value creation will be based on synergies that can be achieved.
"Those synergies are arrived at in the revenue line and the cost line. Cost synergies are far more difficult to achieve in an economic downturn...from day one, we've always said that there is limited revenue synergies from this deal. The real synergy upside would have to come from cost and in a slow economic environment, cost synergies are just a bit more difficult to achieve," he added.
Nazir said there have been many meetings between the three parties with "very intense" management discussions at many levels.
"Our relationship with MBSB and RHB have been and continues to be superb. I would say that the merger negotiations have been done at a very pleasing level. The cooperation with the teams have been superb."