KUALA LUMPUR (Reuters) - Malaysia’s RHB Bank (RHBC.KL) and AMMB Holdings (AmBank) (AMMB.KL) are starting merger talks to form a group worth about $9 billion, in what is likely to be the nation’s biggest banking deal.
RHB and AmBank have received the nod from the Malaysian central bank to commence the merger negotiations, they said in a joint statement on Thursday. The transaction is expected to be an all-share deal and the two banks have until Aug. 30 to exclusively discuss a deal, they said.
A merger would reinforce RHB’s ranking as the fourth largest Malaysian bank by assets behind Maybank (MBBM.KL), CIMB Group Holdings (CIMB.KL) and Public Bank (PUBM.KL). AmBank is currently the country’s sixth biggest bank.
Sources told Reuters on Wednesday that RHB would be the acquirer in the potential merger. AmBank has a market capitalization of 15.7 billion ringgit ($3.66 billion), while RHB has a market value of about $5.0 billion.
A full takeover at those price levels by RHB would put the deal above the 2006 acquisition of Southern Bank by Bumiputra-Commerce Holdings for $1.74 billion, making it the biggest Malaysian banking transaction, according to Thomson Reuters data. Bumiputra-Commerce eventually became the current CIMB Group after a series of mergers and a rebranding exercise.
Rumors of a merger between RHB and AmBank go as far back as 2007, though the companies have denied it several times in the past.
Trading in shares of RHB and AmBank were suspended, ahead of the announcement. They will resume trading on Friday.
In a research note ahead of the merger announcement, UOB Kay Hian analyst Keith Wee Teck Keong said RHB’s shares are likely to react negatively to the announcement as the revenue synergies between the two groups are not compelling.
“We opine that such a merger would require a fair degree of cost rationalization given the degree of operational and revenue duplication between AMMB and RHB,” he said.
ANZ Banking Group (ANZ.AX), which owns a 24 percent stake in AmBank, has been weighing a sale of its stake since early last year.
And AmBank Chairman Azman Hashim, with a 13 percent stake, has expressed his intention to pare down the shareholding, sources have said.
An ANZ spokesman said on Thursday: “ANZ looks forward to considering the details of the merger proposal once finalised and the extent to which the merger provides value to ANZ shareholders.”
A source familiar with the matter said ANZ believes the merger would create a stronger bank. ANZ’s shareholding will be diluted in the merger, which could help the bank exit its AmBank stake in the medium term, the source said.
Sources have said ANZ wants to sell its AmBank stake partly due to the Malaysian bank’s involvement in a political scandal linked to state fund 1Malaysia Development Berhad and Prime Minister Najib Razak.
Najib has been buffeted by allegations of graft, in particular by revelations of the transfer of hundreds of millions of dollars into his AmBank accounts in 2013.
Najib has denied any wrongdoing and said he did not take any money for personal gain. 1MDB is the subject of money laundering investigations in at least six countries.
In 2015, AmBank was slapped with a 53.7 million ringgit fine by the Malaysian central bank for breaching certain financial regulations.
Deal activity in the Malaysian banking sector has been subdued in recent years amid slowing economic growth and a slump in oil prices.
In 2014-15, RHB, CIMB and Malaysian Building Society Bhd (MBSS.KL) were in talks for a three-way, $20 billion merger to create Malaysia’s largest bank. But the talks collapsed as the parties failed to agree on the terms.
Malaysian Building Society then entered into merger talks with Bank Muamalat Bhd, but that also fell through. It is currently in merger talks with Asian Finance Bank.
Reporting by A. Ananthalakshmi; Additional reporting by Jamie Freed in Sydney and Liz Lee in Kuala Lumpur; Editing by Muralikumar Anantharaman