Thursday, June 3, 2010

Potential synergies in Affin-EON Cap merger

Friday June 4, 2010




By ELAINE ANG

elaine@thestar.com.my



Combined entity will have strong niche in SME and hire purchase segments



PETALING JAYA: The possible merger between Affin Holdings Bhd and EON Capital Bhd (EON Cap) could create a combined banking group with a strong niche in the small and medium enterprise (SME) and hire purchase banking segments.



“Affin’s strength is in SME loans while EON Cap’s focus is in the consumer hire purchase segment. The merger will enable the combined group to excel in niche areas such as the SME and hire purchase businesses. These areas have much potential for growth,” a source familiar with banking operations said.



The combined banking group will be in third position in terms of SME and hire purchase lending versus other listed peers with loans worth RM12.2bil and RM14.6bil respectively. The possible merger would also enable the group to develop new areas of business in bancassurance, corporate and investment banking, treasury and priority banking, the source said.



The possible merger of Affin, the eighth largest banking group in the country, with the seventh largest EON Cap, would result in the sixth largest bank by assets with combined assets totalling some RM83bil. It would also create a banking group with the fourth largest branch network in the country with 230 branches nationwide.



Analysts said Affin’s subsidiaries, including its life and general insurance and asset management businesses would have access to a bigger customer base of about 1.7 million customers and a wider reach through a larger combined branch network.





Analysts also see cost synergies to be derived from the possible merger, driven by improvement in deposit/funding mix and cheaper access to long-term deposit and capital market funding.



Citing an example, an analyst said the possible merger could result in operational efficiencies and drive branch administration and staff costs down by some 24.5% and 8.5% respectively.



It had been pointed out that Affin might not have sufficient financial muscle to undertake the deal on its own. However, Affin managing director Tan Sri Lodin Wok Kamaruddin was quoted in a news report that the banking group had the financial means to make a takeover bid for EON Cap.



This could be linked to the fact that Affin has shareholders with deep pockets, such as Lembaga Angkatan Tentera, which holds a 32% stake in the bank, and Hong Kong’s Bank of East Asia, which owns 22%.



It is believed that Affin’s key shareholders have already expressed their support for the transaction and would make substantial equity commitment, such as backing a rights issue to ensure proper capitalisation going forward.



Affin has sought the green light from Bank Negara to make a general offer for EON Cap. It was reported that Affin is offering between RM7.40 and RM7.60 per share and that it planned to fund the acquisition through a rights issue.


http://biz.thestar.com.my/news/story.asp?file=/2010/6/4/business/6397131&sec=business

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