Tuesday, 22 December 2009

Hong Leong may yet seal EONCap deal

Hong Leong may yet seal EONCap deal
By Chong Pooi Koon
Published: 2009/12/22

Hong Kong-based Primus Pacific Partners may not be fond of Hong Leong's bid but its options appear limited

HONG Leong Bank Bhd (5819) may see through its deal to buy smaller rival EON Capital Bhd (EONCap), even without unanimous support from the latter's fragmented shareholders, analysts said.

Primus Pacific Partners Ltd, a Hong Kong-based investment firm that had paid RM9.55 per share for its 20.2 per cent stake in EONCap last year, may not be fond of Hong Leong's bid but its options appear limited.

Primus will need a high price to exit, but Hong Leong, controlled by shrewd investor Tan Sri Quek Leng Chan, is not known to overpay in deals.

"It will be tough for Primus. It's an uphill struggle for them," a banking analyst said.

Despite it being the single largest EONCap shareholder, Primus could be easily eclipsed by other major shareholders whose stakes, when added up, are way bigger.

It is believed that Tan Sri Tiong Hiew King, who holds a 16.3 per cent stake in EONCap, and Singaporean businessman Rin Kei Mei, with another 11.1 per cent, are ready to talk to Hong Leong.

Combined with Khazanah Nasional Bhd's 10 per cent stake, they will together control 37 per cent of EONCap, which is more than sufficient to trigger a general offer for the remaining shares, HwangDBS Vickers Research noted.

The Employees Provident Fund owns another 11.9 per cent of EONCap.

"Let's not forget about the minority shareholders who have roughly 30 per cent combined. This is a good exit strategy for them as they will never see a price as high as RM9.55 as Primus had paid," another analyst said, who estimated that a price of slightly above RM7 per share could be fair for "everybody except Primus".

Shares of EONCap jumped 4.6 per cent yesterday to close at RM6.88, retreating from an earlier gain in the day.

Hong Leong Bank could opt to buy EONCap's assets and liabilities under the takeover rules, where it would only need 50 per cent plus one EONCap share vote by value for the deal to go through, HwangDBS said.

This will be a less messy structure and Hong Leong will not need to worry about Primus being the deal breaker.

Primus also lacks a strong bargaining chip. While a merger could give Hong Leong greater scale and size to meet its aspirations as a regional player, it is likely to walk away and focus on building growth elsewhere if the price is expensive.

Hong Leong has already made solid forays into China and Vietnam, while it is eyeing to enter Indonesia and Thailand.

"These options in high growth, higher margin countries will be better bets for success for Hong Leong," HwangDBS said.


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