HLB buy EONCAP

HLB boss, Quek has obtained the permission from Bank Negara to start negotiation both with shareholder and board of directors of EONCAP in the effort to buy over EON bank. If negotiations bear fruit, this will make the merged entity become country 4th largest bank; both in term of asset's value and market capitalisation. This is a good new for the country's banking sector as Bank Negara will awarding some lisenses to foreign banks and moving to liberalisation of our banking and finance sector. However, the thing that matters now would be how much EON bank worths? And how much HLB or indeed Quek would like to pay now? The answer would be quite simple and obvious! When Quek start to obtain the permission from Bank Negara, he on that time should has confident enough that this transaction would be fruitful. The only obstacle would be from the single largest shareholder: Primus Pacific which bought EONCAP at RM9.55 per share few years back! Other shareholders have no problem with the deal. Those agreed for the deal is holding more than 50% shares currently and this will help to boost this transaction! Based on past M&A in banking, for example Bumiputra Commerce(current CIMB) bank bought over Southern bank at 2 times Price to Book Value(PBV). According to latest quarterly result of EONCAP, its NTA is at RM5 per share, this would make EONCAP valued at RM10 per share. However, I do not think Quek would pay for such a high amount. The fair value should between 1.5 times PBV to 2 times PBV. Lets take the medium value; 1.75 times, this would valued EONCAP at RM8.75 per share! The acquisition might carry out in 2 options, pay cash and exchange to HLB share. In latter scenario, the conversion ratio might at 1:1. This conversion ratio is lower than the cash option because this will dilute the Quek shareholding and very likely he would not let it happen because Quek is in cash rich position. Based on the closing price of EONCAP at around RM7, there is still a possible uptrend of 25%. Target buy for this stock until it break the RM8.50 level.