THERE are compelling reasons for top lender Malayan Banking Bhd (Maybank) to take over OSK Holdings Bhd (5053) and analysts wonder if it may just be a matter of time before Maybank officially starts courting the regional investment banking and brokerage group.
Maybank has long wanted to grow its investment banking business regionally and OSK offers it the platform to do so.
A takeover will also enable Maybank to go regional with its brokerage business.
Unlike its closest rival CIMB Group Holdings Bhd, Maybank does not have a brokerage business outside Malaysia.
OSK has quietly but aggressively expanded beyond Malaysia in recent years, and now has a presence in Cambodia, Singapore and Indonesia.
Maybank's investment banking business including brokerage, contributes less than 5 per cent to the group's overall earnings and this is something it needs to improve on.
Maybank has neither confirmed nor denied a recent report that it is keen to buy OSK, saying only that it is always on the lookout for opportunities to be a regional player.
OSK, meanwhile, said it had not entered into any serious or exclusive talks with any party on equity or strategic partnerships.
"This is still preliminary at this stage as there are no formal approvals to commence negotiations, but at face value, the deal looks compelling for Maybank if it intends to spruce up its broking business regionally," noted HwangDBS Vickers Research' banking analyst, Lim Sue Lin, in a report yesterday.
A takeover would also immediately catapult Maybank to become the country's top broker by value and volume.
OSK ranked top in terms of trading volume as at October this year with an 11 per cent market share, compared with Maybank's 5.5 per cent share.
OSK booked a RM112 million net profit last year, and while the earnings enhancement to Maybank would be relatively small, in terms of ranking and regional presence, "Maybank would be charting new territories," Lim noted.
Still, while there are strong reasons for Maybank to buy OSK, it remains to be seen if the latter's controlling shareholder and group managing director Ong Leong Huat, who has a 31.5 per cent stake, will want to sell.
Given that he has steadily built up the business and is grooming his son, who already works with OSK, to takeover and grow it further, indications are that he will not let go unless there is an irresistible offer.
If the transaction is priced at two times the book value, the total price tag for OSK would be around RM2.2 billion, said Lim. (OSK's book value as at June this year was RM1.68 a share.)
OSK's share price, which has been on the rise of late, surged 5.4 per cent to RM1.97 yesterday, its highest close in 39 months. Maybank fell 1.8 per cent to RM9.10.
The last investment banking transaction in Malaysia, in 2007, was done at one-time book value. This was when Hong Leong Investment Bank bought Southern Investment Bank from CIMB for RM65 million.
Investment banking transactions before that were done at between 1.2 times and 1.4 times book value, analysts said. But the targets, including Southern Investment Bank, were small whereas OSK is a regional franchise.
Apart from Ong's 31.5 per cent stake, OSK's shareholding structure is fragmented, with shareholders each holding less than5 per cent.
Analysts believe a hostile bid for OSK is unlikely. "It isn't Maybank's style. Also, it does not make sense to make a hostile bid for an investment bank as it is the people that you want, not the assets and liabilities," said one, pointing out that OSK's staff may leave in the event of a hostile takeover.
Read more: A matter of time before Maybank woos OSK? http://www.btimes.com.my/Current_News/BTIMES/articles/mayosk/Article/#ixzz15370G4Oq
Maybank has long wanted to grow its investment banking business regionally and OSK offers it the platform to do so.
A takeover will also enable Maybank to go regional with its brokerage business.
Unlike its closest rival CIMB Group Holdings Bhd, Maybank does not have a brokerage business outside Malaysia.
OSK has quietly but aggressively expanded beyond Malaysia in recent years, and now has a presence in Cambodia, Singapore and Indonesia.Maybank's investment banking business including brokerage, contributes less than 5 per cent to the group's overall earnings and this is something it needs to improve on.
Maybank has neither confirmed nor denied a recent report that it is keen to buy OSK, saying only that it is always on the lookout for opportunities to be a regional player.
OSK, meanwhile, said it had not entered into any serious or exclusive talks with any party on equity or strategic partnerships.
"This is still preliminary at this stage as there are no formal approvals to commence negotiations, but at face value, the deal looks compelling for Maybank if it intends to spruce up its broking business regionally," noted HwangDBS Vickers Research' banking analyst, Lim Sue Lin, in a report yesterday.
A takeover would also immediately catapult Maybank to become the country's top broker by value and volume.
OSK ranked top in terms of trading volume as at October this year with an 11 per cent market share, compared with Maybank's 5.5 per cent share.
OSK booked a RM112 million net profit last year, and while the earnings enhancement to Maybank would be relatively small, in terms of ranking and regional presence, "Maybank would be charting new territories," Lim noted.
Still, while there are strong reasons for Maybank to buy OSK, it remains to be seen if the latter's controlling shareholder and group managing director Ong Leong Huat, who has a 31.5 per cent stake, will want to sell.
Given that he has steadily built up the business and is grooming his son, who already works with OSK, to takeover and grow it further, indications are that he will not let go unless there is an irresistible offer.
If the transaction is priced at two times the book value, the total price tag for OSK would be around RM2.2 billion, said Lim. (OSK's book value as at June this year was RM1.68 a share.)
OSK's share price, which has been on the rise of late, surged 5.4 per cent to RM1.97 yesterday, its highest close in 39 months. Maybank fell 1.8 per cent to RM9.10.
The last investment banking transaction in Malaysia, in 2007, was done at one-time book value. This was when Hong Leong Investment Bank bought Southern Investment Bank from CIMB for RM65 million.
Investment banking transactions before that were done at between 1.2 times and 1.4 times book value, analysts said. But the targets, including Southern Investment Bank, were small whereas OSK is a regional franchise.
Apart from Ong's 31.5 per cent stake, OSK's shareholding structure is fragmented, with shareholders each holding less than5 per cent.
Analysts believe a hostile bid for OSK is unlikely. "It isn't Maybank's style. Also, it does not make sense to make a hostile bid for an investment bank as it is the people that you want, not the assets and liabilities," said one, pointing out that OSK's staff may leave in the event of a hostile takeover.
Read more: A matter of time before Maybank woos OSK? http://www.btimes.com.my/Current_News/BTIMES/articles/mayosk/Article/#ixzz15370G4Oq
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