Tuesday, 26 January 2010

Hong Leong's offer undervalues EONCap: Chairman

Hong Leong's offer undervalues EONCap: Chairman
By Chong Pooi Koon
Published: 2010/01/26

EON Capital has sought clarification from Hong Leong 'on a range of details' in its buyout proposal, particularly on the valuation.

EON Capital Bhd (EONCap)(5266), which must decide on Hong Leong Bank Bhd's takeover offer by tomorrow, may try to remove the clause that restricts it from talking to other potential bidders while asking for a higher price.
 EONCap, the smaller of the two banks, said it has yesterday sought clarification from Hong Leong "on a range of details" in its buyout proposal, particularly on the valuation.

"The board (of directors) is evaluating this approach, but on the face of it the offer price significantly undervalues EONCap," chairman Tan Sri Syed Anwar Jamalullail said in a statement yesterday.

Hong Leong, the sixth largest local bank, last Thursday said it will offer RM7.10 cash per share to take over EONCap. The offer priced EONCap at 1.4 times book value, which falls in the lower end of the past valuations range in local banking deals.

Still, many banking analysts feel that the price offered was fair given EONCap's weaker franchise, though others argued that scarcity premiums should be attached as there are not many local lenders left available for a takeover.

Hong Leong has also set strict conditions in its proposal, one of which requires EONCap to deal with it exclusively on the sale.

"In evaluating the Hong Leong Bank offer, we will consider all alternatives open to us in order to fulfil our responsibility to shareholders," Syed Anwar said yesterday.

Meanwhile, EON Banking Group chief executive officer Michael Lor was quoted by Bernama news agency as saying that EONCap's board was also looking into other offers as there were interested parties.

"If there are better opportunities, why not pursue all the alternatives?" he told reporters in Petaling Jaya yesterday. Lor, however, said that he did not know whether other banks had submitted their applications to Bank Negara Malaysia to participate in the negotiations.

EONCap said it had launched a three-year transformation programme in October 2007, which sharply improved the bank's performance despite difficult economic conditions in 2009.

"In the past year, we have seen our transformation programme succeeding. As Malaysia emerges from the economic downturn, EONCap is well positioned for future value creation," Syed Anwar said.

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