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The Ministry of Finance (MOF) has approved a potential takeover of EON Capital Bhd (EONCap) (5266) by bigger rival Hong Leong Bank Bhd in a RM5.06 billion deal.

EONCap, in a filing to the stock exchange late yesterday, said it received the go-ahead through Bank Negara Malaysia.

Hong Leong said in a separate statement that it had received approval.

“This is one hurdle cleared. Now EONCap just needs to get its shareholders’ approval. And if the Hong Leong offer is declared valid in court, you’ll have a merger,” said an analyst who tracks the stock at a local brokerage.

EONCap’s shareholders are to meet on August 19 to decide on the deal despite opposition from its biggest shareholder, Primus Pacific Partners.

Primus, which thinks Hong Leong’s implied offer price of RM7.30 a share for the smaller bank’s assets and liabilities is too low, has taken the matter to court, claiming the offer is illegal in structure and unfair to smaller shareholders.

The case goes to trial on September 20-23 and September 27-28.

While it is “not unusual” for the government via Bank Negara to approve a corporate deal prior to shareholders doing so, the move also indicates support for a Hong Leong-EONCap merger, said an analyst at a foreign research house.

A merger between the two would create the country’s fourth largest banking group.

EONCap’s board has said that if its shareholders approve the deal at the August 19 meeting – and analysts largely expect they will – it will only be able to accept the offer if the court declares it legal.

Hong Leong recently extended its deadline for EONCap to accept the offer deal to November 30, from August 15.

EONCap’s three biggest shareholders which have indicated they want to sell – Rin Kei Mei, Tan Sri Tiong Hiew Kheng and Khazanah Nasional Bhd – already hold a combined 41.7 per cent stake. The deal needs only 50 per cent plus one vote to be successful at the shareholders’ meeting.

If the deal proceeds, Hong Leong has up till the end of this year to decide what to do with EONCap’s investment banking licence held through MIMB Investment Bank Bhd.

Bank Negara’s policy prohibits a domestic banking group from holding two investment bank licences.

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Trading in Kenmark Industrial Co (M) Bhd shares will be suspended from Aug 9 until further notice as the company has failed to submit its audited accounts for the financial year ended March 31 to Bursa Malaysia within the stipulated timeframe.

The troubled furniture manufacturer had informed Bursa last Tuesday that it would miss the July 31 deadline to submit its audited accounts, after Bursa rejected its application for an extension.

Kenmark hogged the headlines in early June after its key management and Taiwanese executive directors went missing, leaving the company in a lurch.

The case is still under investigation, and it is understood that the SC may invoke its powers under the newly created Section 317A of the Capital Markets and Services Act 2007 (CMSA) to pursue any wrongdoings by Kenmark officials.

The Securities Commission (SC) then started investigations on the company on non-submission of financial statements, default in payments and the missing directors.

Days later, former director Datuk Ishak Ismail appeared as the white knight and emerged as the single largest shareholder after acquiring a 32% block in Kenmark, only to sell off his entire stake within two weeks for a massive profit.

The SC had on June 15 obtained a court injunction to stop Ishak from using the RM10.2mil proceeds from his sale of 58.7 million Kenmark shares.

The case is still under investigation, and it is understood that the SC may invoke its powers under the newly created Section 317A of the Capital Markets and Services Act 2007 (CMSA) to pursue any wrongdoings by Kenmark officials.

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Shares in Tanjong plc surged to a record high after trading resumed yesterday following a conditional takeover offer from Tanjong Capital Sdn Bhd at RM21.80 per share.

The country’s third-largest power producer, which topped the gainers’ list, jumped more than 20.2%, or RM3.56, to a record of RM21.14. Prior to the takeover offer, Tanjong had been trading between RM17.38 and RM18 over the past two weeks. Year-to-date, the counter gained more than 25.53%.

Based on the closing price, the offer price represented a 3.12% premium.

Last Friday, Tanjong announced that Tanjong Capital, a private vehicle set up by Usaha Tegas Sdn Bhd and its allies that collectively hold 46.9% stake in Tanjong, had offered to buy shares it did not already own for RM21.80 per share, or RM4.7bil in total. Tanjong will also cancel its listing on the London Stock Exchange effective Aug 27.

Tanjong’s privatisation is the second deal launched in a week after T Ananda Krishnan offered RM4.20 per share for satellite service provider, Measat Global Bhd. In March, he made a similar move to buy out Astro All Asia Networks plc.

HwangDBS Vickers Research Sdn Bhd noted that a re-listing was possible upon restructuring of the utility assets controlled by Ananda.

It said the privatisation move was made mainly to facilitate Tanjong’s plan to acquire new greenfield power assets.

HwangDBS said the offer valued Tanjong at RM8.8bil, or 22% premium over the last traded (prior to the announcement) price per share.

“Tanjong’s shareholders should accept the offer given the attractive valuation at 13 times FY11F price earnings (PE) ratio and 2.1 times price to book value (P/BV) are above its historical highs.

“The offer price is also 12% above our sum of parts-derived target price of RM19.50 per share,” it said.

RHB Research Institute Sdn Bhd opined that the privatisation would likely go through, although not without some resistance from investors who want to ride on Tanjong’s long-term prospects in regional power projects, notwithstanding the earnings risk from the tough regulatory environment.

“We note that a demerger of the non-halal gaming business from the potentially high-growth power business would have addressed some of the issues with regards to raising capital from syariah-related funding sources. Another alternative could have been to buy out the gaming and leave power within Tanjong,” it said.

However, the research house believed privatisation was the cleanest option due to the potentially deteriorating valuation for the numbers forecast operator given the uncertain regulatory environment, especially after the recent 2% hike in betting duties.

It also pointed out that a power-only Tanjong would also faced an uncertain future.

Meanwhile, ECM Libra Investment Research expects the offer to be well received given the generous premium offered. “The offer price is even higher than its all-time high share price of RM19.12 on April 6.”

Tanjong had earlier said it intended to double its capacity which translates to about 4,000MW.

“Assuming it will cost US$1 per MW, Tanjong will require US$4bil in financing or a whopping 1.8 times in market capitalisation.

“Lest minority shareholders voice their displeasure at being required to finance the acquisition via rights issues or have their dividends reduced, we believe the major shareholders chose to privatise Tanjong,” ECM said in a report.

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