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Hong Kong-based Primus Pacific Partners yesterday filed a lawsuit against the directors of EON Capital Bhd (EONCap) (5266) in an attempt to stop the lender from being taken over by bigger rival Hong Leong Bank Bhd.

Primus, which is EONCap’s single largest shareholder with a 20.2 per cent stake, claims that Hong Leong’s RM5.06 billion takeover offer is unlawful in the way it is structured and that EONCap’s directors, who plan to let shareholders decide on the offer, have not acted in the best interest of the company.

“We have secured a number of legal opinions that come to the conclusion that the manner in which the offer is proposed to be implemented is unlawful,” Primus’ managing director Jeroen Nieuwkoop said in a press statement yesterday.

Primus’ latest move, which was not unexpected, came just a day before EONCap was to have announced that shareholders would meet on July 15 to decide on Hong Leong’s offer, sources said.

It is understood that the announcement for the extraordinary general meeting has been shelved for now as the bank deals with the lawsuit.

EONCap told the stock exchange late yesterday that it was seeking legal advice over the suit.

Adding heat to the smaller bank is that Hong Leong has now said that it may withdraw its takeover offer if EONCap doesn’t secure all approvals for the offer – including that of shareholders and Bank Negara Malaysia – by August 15 this year. It said this in a separate filing to the stock exchange yesterday.

It is understood that Primus has named all the bank’s board of directors – except Primus’ representative Ng Wing Fai – as respondents in the lawsuit. There were nine in all.

In addition, three corporate entities controlled by the families of major shareholders Rin Kei Mei and Tiong Hiew King were also named.

The Malaysian High Court has set a July 6 hearing date. A source close to Primus said the firm is not seeking an injunction to stop shareholders from meeting to decide on the offer, as this would be a temporary remedy.

What it wants is for the court to agree that Hong Leong’s offer, as it is currently structured, is unlawful and shouldn’t be allowed. In the event that it happens, “everybody has to go back to the drawing board”, the source said.

“Given the urgency of the matter and importance of a swift and final resolution, a certificate of urgency will be filed for the subject matter to be resolved with finality,” Primus said in its statement.

Hong Leong first attempted to buy EONCap in January, offering RM4.92 billion to take over the latter’s assets and liabilities, but the board had shot down the offer as it was seen as too low.

Hong Leong then launched the improved RM5.06 billion offer after the smaller bank appointed new board members. The new board plans to recommend that shareholders accept the improved offer.

Primus is against the takeover as the offer price of RM7.30 a share is well below its entry cost of RM9.55 a share. EONCap’s independent adviser Credit Suisse has said the offer is unfair from a financial perspective.

Related Posts:

• EON Capital said Yes to Hong Leong takeover
• Hong Leong extends EONCap offer to November 2010
• Primus Pacific Partners Ltd Management Control in EON Bank
• Nearing the end for EON Capital Berhad
• Primus petition failed

Its front page in all major newspaper in Malaysia today, 5 February 2008. The purchase of Primus Pacific Partners Ltd (a Hong Kong based investment fund) of 20.2% shareholdings of EON Capital Bhd from DRB-HICOM. Primus major shareholders are the Qatar Investment Authority and the Tsai family that control Taiwan based Fubon Financial company.

Pro Trade Shares decided to break its own promise of not making any comments about listed shares in Bursa. I have decided to comment on the matter of Primus Pacific Partners buying a majoring stake in EON Capital Berhad which own EON Bank. Will this be the first of many to come? I don’t know. Maybe I will, maybe I won’t. Why don’t you guys out there post your comments on this.

The inside information that I received was that since mid 2007, Primus appointed auditors/consultants have been doing its due diligent in EON Bank since they applied to Bank Negara to negotiate on the purchase of a major stake from DRB-HICOM. All budget proposal for 2008 submitted to EON Bank board of directors were scrutinised. All the expenditure proposal has to be approved by the appointed consultants before the bank board can discuss them. This is to ensure Primus’s interest is protected prior to the official signing of the purchase agreement.

A few senior management staff have either ‘retired’ or ‘re-assigned’ in a new organisation structure announced at the end of 2007. Two senior position has been created; Head of Group Finance and Head of Group Operations and IT. The positions are still vacant.

There is a very strong possibilities that these two senior positions will be given to Primus appointed people. The Head of Group Finance is a very important position in the bank. It allow the person to authorise all expenditures or spending or investment by the bank. Therefore the bank board or senior management committee cannot authorise any ‘big’ expenditure spending without the knowledge of Primus (if the person is appointed by Primus).

The last traded price for EON Capital Bhd this morning (5 February 2008) is RM6.40, up 32sen. Still far from the price of RM9.55 per share as paid by Primus to DRB-HICOM.

According to reliable sources, Bank Negara will not allow Primus to increase its stake in EON Capital Bhd as Primus is not a foreign financial institutions such as a bank, unlike the ANZ bank from New Zealand that took a much bigger share in Arab Malaysian Bank last year. Since Primus will not be making anymore offer to existing shareholders of EON Capital Bhd, my guess is that the share price will not move upward to the RM9.55 region. Its share price will continue to be in the region of RM6.00 to RM7.00 unless there are any major announcement on its profitability or its business direction.

There, this is my comments on the purchase of major block from DRB-HICOM by Primus Pacific Partners Ltd. and the very high possibility of Primus placing their people in the senior management position in EON Bank.

To my Chinese readers, I wish you all a very Happy and Properous Chinese New Year, the year of the RAT.

Related Posts:

• EON Capital said Yes to Hong Leong takeover
• Primus petition failed
• EONCap Shareholders say Yes for sale of EON Bank
• EONCap sequel: EGM on 19 August
• Hong Leong extends EONCap offer to November 2010