RHB-OSK merger on, it will create Malaysia's biggest stockbroker

PETALING JAYA: RHB Capital Bhd and OSK Holdings Bhd have submitted their applications to the Finance Minister via Bank Negara for relevant approvals in relation to a proposed merger.

Both banks said this in separate announcements to Bursa Malaysia.

According to people familiar with the matter, the proposed merger deal is likely to be done via a combination of share swap and cash, although the ratio of this is not immediately known.

“It is likely to be a merger of only the investment banking businesses of both entities,” a source added.

Purchasing OSK Investment Bank would allow RHBCap to replace CIMB Investment as the biggest stockbroker in Malaysia

At this stage, it is still not completely clear as to how the merger will take shape owing to scant details, but industry people generally concur that RHBCap, as the larger entity in terms of market capitalisation, will take over the operations of OSK Investment Bank Bhd, a unit of OSK Holdings.

One possible scenario circulating in the market is that RHBCap is likely to offer new shares to OSK Holdings or its shareholders and that OSK Group founder and major shareholder Ong Leong Huat and his team are expected to drive the merged investment banking unit due to Ong's vast experience.

News reports have previously cited unnamed sources saying that RHBCap may pay as much as RM1.9bil in shares for OSK Investment Bank.

In a surprise move after failing to merge with giants, namely Malayan Banking Bhd and CIMB Group Holdings Bhd last June, RHBCap turned into a prospective buyer last October and approached OSK Holdings for possible synergy between both groups.

Purchasing OSK Investment Bank would allow RHBCap to replace CIMB Investment as the biggest stockbroker in Malaysia.

Alliance Research Sdn Bhd vice-president of equity research Cheah King Yoong, who covers banks, said that should the merger exercise be satisfied through cash payment and share swap, OSK Holdings could end up becoming a cash company upon completion of the proposed deal.

He foresees that OSK Holdings is likely to distribute the cash and RHB shares obtained through the merger exercise to its shareholders through cash dividend and dividend in specie.

Consequently, OSK Holdings should be de-listed, he said.

Cheah has revised upward the target price of RHBCap to RM8.70, upon removing a 10% discount from his valuation.

The 10% discount was imposed previously to reflect the uncertainties surrounding its merger exercise with OSK Holdings, which he believes is no longer justifiable in view of the subsiding uncertainties with the impending merger exercise drawing closer.

Reviewing past banking merger deals, he expects the proposed merger to be approved by the central bank and the merger details to be announced earliest by March.

OSK Holdings ended 4 sen higher to RM1.84 while RHBCap finished flat at RM7.27 at the close.

By YVONNE TAN and CHOONG EN HAN
starbiz@thestar.com.my