Offer is out. RM7.10 apiece for EONCAP shares

Long awaited offer is out. Hong Leong bank offer RM7.10 cash for a share in EONCAP make the deal worth RM4.9 billion. The deal does not come with a share conversion option, which signify shareholders cannot convert their existing EONCAP shares to HLB shares. I consider this as a lose to existing shareholders. If the deal is successful, this will create the 4th largest bank in domestic front in Malaysia, surpassing RHB, currently is the no4.
According the announcement, 7.10 is arised from premium of 31.5% to the 180-day volume weighted average price ("VWAP") of EON Capital shares as at 16 December 2009.This is no fair enough because they use 180VWAP instead of 30VWAP,because the past 6 months is the tough time for financial sector and dampened by economy crisis. And secondly, calculation are as at 16 DEC, which is a month ago, they ignore the current performance and transformation by EON bank and those bought its share recently.
RM7.10 is just merely 1.4times Price to Book value of EONCAP as EONCAP has more than RM5 book value per share. In comparison when CIMB bought the Southern Bank, CIMB paid 2.1times PBV. 1.4 times PBV is perhaps among the lowest offer after the consolidation of local banks in the past.
Frankly speaking, I have bought few lot of EONCAP before this. I was not speculating, but after taking into acount the strong balance sheet, reputation, transformation done, growth prospect of EONCAP and careful research and study has been carried.
I am not happy with the price, and there is no option given to us to choose between share conversion and cash. With RM7.10, I actually has make money from it. But I not satisfied when HLB is a way of far undervalueing EONCAP.
I will going to vote against the propose merge in the coming EONCAP EGM in coming weeks!
Hope those face the same fate will join me.
Thank You.

EONCAP

EONCAP is the holding company of EON bank which has strong position in car loan lending activity. Recently, the board has entered into talk with Hong Leong bank in which latter has granted permission from bank negara to start the talk in effort to acquire smaller rival in the country. The only obstacle would be from Primus Pacific which controlled the EONCAP board. Primus has paid RM 9.55 per share to acquired 20 % of EONCAP in 2007.

It is likely Quek will only pay RM8 per share for EONCAP which equivalent to 1.6 times Price to Book value (PBv). Therefore, Primus will try their best to stop the acquisition.

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.