HLB: Likely To Succeed in EON Takeover

Hong Leong Bank (HLB) is poised to make a voluntary general offer for the assets and liabilities of EON Capital which include EON Bank, Malaysia’s seventh smallest bank. If this takes place,the merger between the two would create a RM110.5 billion bank, the country’s fourth largest. This is the report filed by Business Times of Singapore today.

'HLB announced that the central bank had, via a letter dated Jan 6, indicated that it has no objections to the bank commencing negotiations with the boards of EON Capital and EON Bank to purchase the group’s assets and liabilities.

EON Capital, which is listed on the stock exchange of Kuala Lumpur, owns 100 per cent of EON Bank.

According to Malaysian law, a voluntary general offer would be deemed successful if 50.1 per cent of EON Capital’s shareholders agree to it.
Only one shareholder — the Hong Kong-based investment fund, Primus Pacific Partners might be opposed to it. Three years ago, the fund bought into EON Capital at a jaw-dropping RM9.55 apiece, a price that Quek would probably consider astronomical. And the opposite might be said about Quek’s speculated buying price (RM5.50- RM6) where Primus is concerned.

At least two government agencies — the Employees Provident Fund (EPF) and Khazanah Nasional — which collectively hold 22.1 per cent of EON Capital are said to be favourably disposed towards the HLB bid.

But the key people who have to be persuaded are businessman Rin Kei Mei and Sarawak billionaire Tiong Hiew King who collectively hold 33.2 per cent of the financial firm. Both of them are said to be eyeing a price at around RM8, which would be around 1.4 times book value.

And that could be the rub. Local news reports citing sources have said that Quek Leng Chan, the reclusive controlling shareholder of HLB, would only be willing to pay between RM5.50 and RM6 per EON Capital share which would value the bank at 1-1.2 times book. That may be a trifle cheap for the 2 businessmen’s tastes.

Indeed, there is no certainty that a deal will be struck as this isn’t the first time Hong Leong Bank has eyed EON Capital. A previous attempt several years ago had stalled over pricing: Quek isn’t known to pay more than what he considers a fair price.

But the central bank seems attracted to the idea of merger, which is why some analysts think a happy compromise might be struck. Indeed, the move towards a possible merger reflects the central bank’s desire to winnow the Malaysian banking sector to a few large banks, the better to withstand increased foreign competition starting this year. Currently Malaysia has eight local banks.'

To my mind, whether Hong Leong Bank takes over EON or not is not really important. If it does not, other parties will be making a beeline to it. Also, if Hong Leong Bank is not careful, it will be targetted for absorption as the banking market becomes more competitive and 'smallish' banks like Hong-Leong Bank will be hot for the gobble!