March 27th 2008: Maybank pays 4.6 times price-to-book for RM4.8b acquisition of BII
- “It was for strategic reasons and the financial rationale was extremely compelling.The acquisition will transform our growth prospects in Indonesia and is a huge step forward in our strategy to regionalise our operations through investments in selected high growth markets,” he said.
Business Times article on that day carried the following article, which can be read here
- BII deal pricey, but worth it
Is BANK Internasional Indonesia (BII) an expensive deal for Malayan Banking Bhd (Maybank)? On the surface, yes it is. The offer prices BII at 4.6 times book value, while the top five Indonesian banks now trade at around 3.8 to 3.9 times book. However, there are compelling reasons why it is a price worth paying.
The main one is that there are not that many banks that are up for sale in the Southeast Asian region. The first window opened in early 2000 when Indonesia opened its doors to foreign investors to buy its financial assets. Maybank tried in 2004 but its group lost out to the UK's Standard Chartered. This time around, a smaller window opened. Indonesia introduced a rule that prevented a foreign investor from owning more than one bank.
Only Khazanah Nasional Bhd and Temasek, Singapore's investment arm, are affected by this rule. Khazanah owns Lippo Bank directly and Bank Niaga through Bumiputra-Commerce Holdings Bhd (BCHB). Khazanah wants to merge Lippo and Niaga. This leaves Temasek, which owns Bank Danamon and BII. As such, the price tag, apart from a premium for control, also reflects a scarcity premium. "I think it's an acquisition of wanting to be in the market, against price. Otherwise, you might not get an opportunity," said Mushthaq Ahmad Ibrahim, chief investment officer of MIDF Amanah Asset Management Bhd.
It can also be argued that Maybank is paying more for Indonesia's potential. The world's fourth-most populous country has an economy that chugs along at an annual growth rate of about six per cent. Maybank officials revealed yesterday that Indonesia's loan-to-gross domestic product ratio is 24 per cent, compared with 75 per cent in Thailand and 90 per cent in South Korea. This means that there is plenty of room for BII to grow.
- Jakarta rejects Maybank's appeal
By Goh Thean Eu Published: 2008/09/16
Now that the Indonesian regulators have shot down Maybank's appeal, it is almost certain the pact to buy BII will lapse by September 26 and Maybank risks losing its RM480 million deposit
INDONESIA'S capital markets regulator has refused to relax rules for Malayan Banking Bhd, putting its RM8.8 billion deal to buy PT Bank Internasional Indonesia (BII) closer to collapse while a RM480 million deposit risks being forfeited.............
Maybank shares have taken a beating since it announced the acquisition on concerns that it is overpaying. Its shares have fallen by 12.3 per cent, from RM8.95 each to RM7.85, since the deal was announced. (you can access to article here )
Maybank used to be 8.95 but thanks to BII it fell to 7.85.
The next day on the 16th Sept 2008, Maybank fell 45 sen and on the stock fell another 50 sen the next day to close at 6.90.
Some 'news' on the 17th Sept 2008: Bank Negara reinstates nod for Maybank-BII deal
Research house, CIMB, defended the BII deal: Maybank’s potential trading loss from BII cappedPoints to note.
- "However, the market is likely to react negatively to this turn of events given the concerns over the high valuation and capital commitment for the BII deal,” it said.
The research house said while it was pleased that the deal would go ahead, the flip-flops in the past two months underscore the high policy risks of operating in Indonesia.
“Furthermore, the potential BII loss may be an earnings overhang in the next few years,” it added.
A few weeks later, blogger Dali wrote, Petaling Street Hawkers Calling You Back With Deeper Discount!
- When Maybank was faced with the embarrasing situation of losing the deposit for having to walk away - the sellers DID NOT offer a way out for Maybank, knowing full well that Bank Negara was making life hell for Maybank with the additional clause inserted by the Indonesian authorities. Maybank was getting slammed (correctly) for not tightening the deal terms (e.g. deal off if approval is not gotten from the Indonesian authorities, or if there are conditional "changes" to the deal when being approved by the Indonesian authorities).
Make no mistake, i am not siding with Maybank here - in fact the people responsible for the deal should sent back to school.
So to the buggering sellers offering the 480 million ringgit discount - go fly my wau! Too little too late.
Maybank, take your medicine and walk away, lose 400 million ringgit OK what... but surely SOME BLOODY heads must roll - who were the advisors, who were the legal advisors, who were the managers in charge of negotiating the deal???
When Mayban was at 8.95, before BII deal was formally announced, Maybank's market capital was some 43.6 Billion.
Blogger Dali was also quick to point out a few weeks later on 21st October that FinanceAsia reported that the Hongkong and Shanghai Banking Corporation, through its wholly owned subsidiary HSBC Asia Pacific Holdings (UK), will acquire 88.9% of PT Bank Ekonomi Raharja for $607.5 million in cash. HSBC will fund the deal through its own resources.Dali was quick to pen Say Sorry To Maybank?!!! and commented the following.
- It is interesting to note that Bank Ekonomi has a Shareholders' Funds of Rp1.121 Trillion (RM392 million), which means that HSBC is effectively buying Bank Ekonomi at a Price to Book multiple of 6.1 times! This is much higher than the Price to Book multiple of 4.6 times that Maybank will be paying to acquire Bank Internasional Indonesia ('BII') [before subsequent discounts granted by the sellers]. The different in size may account for the higher multiple demanded by the sellers in the Bank Ekonomi deal as compared to the BII deal, as part of the purchase price must include the price of the banking license itself. Nevertheless, one may wonder why does HSBC want to pay such a high premium for this bank since it already has a foothold in Indonesia?
Here we have to be fair to Maybank. For those of us who criticised Maybank for over-paying, HSBC would be doing even worse. The trouble is that we tend to whack our local buggers more readily, and would give big foreign players more benefit of the doubt in almost any transactions. Let's be honest here. HSBC paying 6.1x ... we were screaming of collusion and calling for the board to be sacked for Maybank buying at 4.6x...
There can only be so many possiblities: both Maybank and HSBC overpaid ..... Maybank may have been smarter to buy first as HSBC also bidded for BNI against Maybank ... maybe now HSBC had to overpay even more for not being aggressive in their bidding for BNI... Thanks to HSBC's move, Maybank executives had their prayers answered... they now have something to defend their acquisition with. Even if both Maybank and HSBC overpaid, Maybank will say they overpaid much less. Time for those of us who critiqued to again re-look into the "intrinsic value" of Indonesian banking.
Fair is fair, maybe I have pre-judged Maybank's strategy and misjudged its "valuation techniques". It does not mean I agree with HSBC's strategy, but if an old woman is running very fast, there's bound to be something fishy.
- There is a big difference between paying a premium for license vs paying a premium for franchise. HSBC is paying a premium for a license THAT does not impact its balance sheet. Maybank is paying a premium for a franchise THAT is a huge part of its balance sheet.
NOT all acqusition is the same analysis and price to book does not tell you everything...
- “They were untimely acquisitions. Maybank committed to buy the banks when the world was already in turmoil. The subprime loan issue had surfaced in the west. If it could have waited, the RM10bil would have bought a lot more now that the market is dirt cheap,” said a fund manager.
He added that Maybank paid at the top end of the range even at that time. The price it paid for BII is close to four times the bank’s book value and about 5.1 times the book value per share of MCB Bank.
Banks in the region are now trading about equal to their book values but of course, a higher valuation has to be offered in a takeover or a strategic stake.
Dali was quick with his update: Maybank's Not-So-Right Rights Issue!
- This is where the crux of the matter lies, Maybank bought and invested late into regional banks, at highish prices. The crisis has basically set Maybank up to need to write down substantially on their acquisitions. NOTE THAT NO IMPAIRMENT CHARGES WERE RECORDED for the latest quarter - hint, its coming over the next couple of quarters!!!.
Final thoughts, sell first ask questions later. The rights will be an uphill exercise. If you still want to buy Maybank, look for when the rights are traded, they could be "very cheap". Even when you get the rights cheaply, remember you will have to tolerate a few quarters where there will be substantial writedowns on the regional banks' acquisitions.
Do note: Maybank share base before the rights issue was 4,881,123 million shares. After rights issue, Maybank shares would balloon to 7,077,628 million shares!!!!
Do see also financeAsia article: Maybank sets rights issue priceAnd on today's Edge: Maybank market cap down RM6.5b over 11 days
- KUALA LUMPUR: Malayan Banking Bhd (Maybank) saw RM6.54 billion erased from its market capitalisation over 11 days of losses, the longest losing streak in 22 years, on investors’ concerns that rising bad debts and capital-raising plans would erode its earnings.
Maybank closed at RM4.06, down 28 sen yesterday, which was a decline of RM1.34 or 24.8% from Feb 24 when the share price closed at RM5.40.
The market capitalisation was reduced from RM26.35 billion on Feb 24 to RM19.81 billion as of yesterday.
Last month, Maybank announced a RM6 billion rights offer to boost capital.
Maybank today closed at 4.00.
Market capital is now only 19.5 billion.Remember, before BII deal, Maybank's market capitalisation was some 43.6 billion!
Some 24.1 billion in market capitalisation has gone into thin air!!Is BII deal really worth it?
How?Look at Maybank's stock price.
It has fallen off the cliff!
Maybank had bought banks at a rather high prices and despite many quarters questioning the wisdom of the deal, Maybank held firm with their acquisitions. And now, a rights issue is needed!!
Surely Maybank shareholders aren't happy.
Overpaying for banks here and there. And most of all, the share price is down a lot and since BII deal, Maybank has lost a whopping 24.1 Billion in market capital!!! And if they want to continue to be a shareholder, they have to fork out more money and with the impairment of losses issue, the future is not looking bright at all. (ps. would you want to invest in Maybank right now at 4.00?)
And other Bursa Malaysia shareholders aren't happy either!
How can they ever be happy?
The continued weakness in Maybank is dragging down market sentiments.
Lastly, I have to point out the question raised by Dali last Sept, why didn't Maybank just walk away and lose that 400 million ringgit? Justified? Just eat humble pie and just walk away.
Look at the mess now.
I repeat once more, 24.1 billion wiped of from Maybank's market capital since BII deal was announced last year!
And losses could even mount!
OUCH!!!!!!!!!!!!!
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