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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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EON Capital Bhd’s (EON Cap) independent adviser Credit Suisse Securities (M) Sdn Bhd used four methodologies to arrive at its opinion that the RM5.06bil takeover offer from Hong Leong Bank Bhd (HLB) for the former was “not fair from a financial perspective.”

In a circular to shareholders on Wednesday, Credit Suisse said in evaluating the offer price of RM7.30 per share, it used the:

·Acquisition Premium Analysis to compare the offer price to the historical market price and trading activity of EON Cap;

·Trading Companies Analysis to compare the offer price with the valuation statistics of other major banks in Malaysia;

·Precedent Transaction Analysis to compare the offer price with the valuation statistics of precedent transaction involving banks in Malaysia; and

·Dividend Discount Analysis to evaluate the intrinsic value of EON Cap reflecting its growth and profitability in the future as well as its capital structure and cost of capital.

In summarising the results of its methodologies, Credit Suisse said among other findings, the offer price was below the transaction multiples paid in the precedent transactions in the Malaysian banking sector and also below the implied equity value of EON Cap – taking into account the long-term growth perspective of the company under its existing business strategies.

Under the Dividend Discount Analysis for example, it said the method indicated that the implied equity valuation range of EON Cap was between RM8.25 and RM9.25 per share, or between RM5.72bil and RM6.76bil.

Primus Pacific Partners Ltd, which is EON Cap’s largest shareholder with a 20.2% stake, has long been known to be against the proposed offer. Primus had bought its stake at RM9.55 per share, which is much higher compared with HLB’s cash offer of RM7.30 per share.

Primus last month filed a legal suit against the directors of EON Cap and three entities controlled by Rin Kei Mei and Tan Sri Tiong Hiew King who are major shareholders in the banking group (and willing sellers) for RM1.11bil in damages as it believed that the price for EON Cap should be much higher than that offered by HLB.

Despite this and despite the advice of Credit Suisse, EON Cap is still calling for an EGM to table the offer.

Related Posts:

• EONCap sales cleared by Ministry of Finance
• EONCap sequel: EGM on 19 August
• Hong Leong extends EONCap offer to November 2010
• EONCap Saga continues : Proceed with EGM
• Hong Leong revised terms to buy EON Cap

The board of EON Capital Bhd, owner of Malaysia’s seventh largest bank, will ask shareholders to vote on Hong Leong Bank Bhd’s RM5.06bil (US$1.6bil) takeover offer on Aug 19, according to a statement sent to Bursa Malaysia yesterday.

The move defies EON Cap’s biggest investor which has threatened to seek RM1.11bil in damages if the deal goes through at the current price.

Shareholders are divided over whether to accept an all-cash offer of RM7.30 a share from billionaire Tan Sri Quek Leng Chan’s Hong Leong Bank (HLB).

Primus Pacific Partners Ltd, a Hong Kong-based investment fund, is EON Cap’s biggest shareholder and opposes the deal, having paid RM9.55 a share for its 20% stake in 2008. That’s 31% more, or a difference of RM315mil, based on Bloomberg calculations.

Primus, which has one seat on EON Cap’s board, said it filed a lawsuit against its nine other directors on June 21, claiming they handled HLB’s bid improperly.

The High Court has fixed trial dates from Sept 20 to 28, more than a month after HLB’s offer is scheduled to lapse on Aug 15.

EON Cap rose 0.14% to close at RM6.94 yesterday. The FTSE Bursa Malaysia KLCI rose 0.03%.

HLB was unchanged at RM8.86.

An EON Cap takeover would help Quek create Malaysia’s fourth biggest banking group with assets of about RM121bil.

For the sale to go through, the board needs acceptances from 50% plus 1 share.

Government-owned Khazanah Nasional Bhd, the Employees Provident Fund, businessmen Rin Kei Mei and Tiong Hiew King jointly hold more than 50% of the shares, according to an EON Cap statement on May 21.

HLB’s offer was also dependent on the result of the Primus lawsuit and approval from the Finance Minister, EON said on July 7.

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• EONCap board approved submission offer to shareholders
• EONCap acquisition – no share option
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