01 May 2012

Merger with OSK will make RHB the largest stockbroking firm in Malaysia with nearly 15% market share, overtaking CIMB Securities, which has a 10.5% share

(OSK closing stock price yesterday (30.4.2012) was RM 1.71)
(RHBCAP closing stock price yesterday (30.4.2012) was RM 7.37

A conditional share purchase agreement between RHB Capital Bhd and OSK Holdings Bhd could be signed in one to weeks, after the Finance Ministry (MOF) gave its nod for their proposed merger last Friday, CIMB Research said.

“By then, the details of the deal will be disclosed,” it said in a report, adding that the news of MOF’s approval was not a surprise “as we did not expect any issues to hinder the deal and the negotiations were progressing smoothly”.

StarBiz reported on Friday that the merger was believed to have received the green light from the central bank and was awaiting a decision from the ministry.

Various obstacles had delayed the merger from its original first-quarter completion target, such as securing the approvals of overseas banking and financial regulators, the need to iron out “political and management” issues, and the search for a “neutral” investment banking head.

An analyst told StarBiz that OSK director and major shareholder Ong Leong Huat was the most likely candidate to head RHB’s enlarged investment banking (IB) arm given his years of experience as a stockbroker.

He said it was probable too that OSK’s IB team would be picked to run RHB’s IB business, following some high-level departures at the latter in recent years.

Ong built OSK into the fourth largest retail broker in the country just behind RHB, and other listed companies in his stable include OSK Property Holdings Bhd and OSK Ventures International Bhd.

Kenanga Research in note dated April 19 cited culture shock as a key impediment holding back the merger. “RHB operates under a conservative approach while OSK IB is more of an entrepreneur-driven IB that is more aggressive and risk-taking.” .

Nonetheless, it said the proposed merger would be beneficial in the medium to long term.

“We believe OSK IB is strategically an ideal fit for RHB and will add significant diversification of clienteles and scale in the capital market and also provide an immediate access for RHB into other Asean markets.”

Meanwhile, Alliance Research analyst Cheah King Yoong believes the mode of settlement for the merger exercise would be via a combination of cash and new shares.

A 100% share offer, he pointed out, could dilute RHB Cap’s earnings, which might not allow the acquiring company to fully optimise the synergistic benefits, while an all-cash settlement may might be ideal for management retention and could be negative from a cashflow standpoint.

The merger will make RHB the country’s largest stockbroking firm with nearly 15% market share, overtaking current top-seater CIMB Securities, which has a 10.5% share.

It will become the fourth largest financial services group by assets and see its footprint expanded to markets like Indonesia, Cambodia, Hong Kong and China.

OSK has stockbroking operations in Indonesia, Cambodia, Hong Kong, Thailand and China, and RHB has presence in Singapore, Thailand and Brunei.

Source: www.thestar.com.my


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