ANZ is paying M$3.05 per share for the 13.5% interest. The price represents a 2% premium to the last traded price of AMMB Holdings Berhad, the holding comapny for AmBank. The price of the tranche to be acquired from AmCorp is yet to be finalised with the expectation that the transaction will be completed by February 2007.
The transaction represents ANZÆs largest Asian acquisition to date and is the first strategic, cross-border inbound transaction in MalaysiaÆs banking industry. ANZ senior managing director, Bob Edgar, termed the transaction a ôsignificant step in ANZÆs Asian growth strategyö. Last week ANZ agreed to pay $252 million for a 19.9% stake in Shanghai Rural Commercial Bank to provide further impetus to its China franchise.
David Khoo, managing director at ABN AMRO, advisors to AMMB Holdings, said: "This is the first time that an international bank takes a strategic stake as a valued partner in a Malaysian domestic banking group. The partnership combines the strengths of both parties to enable AmBank Group to further increase its shareholder value and enhance its franchise as a leading player in the Malaysian financial services industry."
The deal is structured through two instruments, a compulsorily convertible preference share and an exchangeable bond.
The 164 million new convertible preference shares, which will be issued by AMMB, represent 6.3% of AMMB's share capital post dilution. The shares are mandatorily convertible at the end of five years and optionally convertible by the acquirer at any time before then. The shares will be entitled to dividends at the same rate as declared for equity share capital plus an additional M$0.02 per share.
ANZ will simultaneously invest M$575 million in an exchangeable bond issued by AmBank. The bond is exchangeable at any time up to 10 years for 188.5 million equity shares in AMMB, representing 7.2% of AMMB's share capital post dilution. The bond is redeemable at par, should ANZ elect not to exchange. The bond carries a coupon of 5% for the first five years and 5.5% for the next five years. The 10-year bond qualifies as tier-2 capital for AmBank. Market participants suggested the effective market interest rate on such an instrument would have been at least 1% higher for AmBank.
ANZ will have board representation and will participate in the management of AmBank. Details with respect to how many directors ANZ will nominate are expected to be ironed out as negotiations with AmCorp progress. The partnership will also give rights for ANZ to nominate representatives on the board of directors of key subsidiaries and management committees. AmBank Group and ANZ are committed to forming a mutually consultative partnership which will permit the adoption of 'global best practices' of ANZ core policies, procedures, practices and codes of conduct, to the extent applicable in Malaysia.
The strike price for both instruments at M$3.05 per share, represents a multiple of 15 times earnings based on March, 2007 forecast and 1.26 times book on a trailing basis.
In 2004, AmCorp had been directed by Bank Negara Malaysia, the country's banking regulator, to reduce its stake from the current 32.9% to 20% by next year as part of Bank Negara's move to institutionalise shareholdings across all of Malaysia's banking groups. On November 21, Bank Negara gave permission for AmBank group to commence negotiations with ANZ. Earlier, the sellers had received permission to negotiate with TPG Newbridge and its affiliates.
Malaysia's banking market has been closely regulated for international players thus far. Currently, permission is necessary to acquire more than 5% in a bank and more then 15% in a bank holding company although it is assumed that it is straightforward to gain permission for a stake of up to 30%. Domestic consolidation has reduced the number of players from 31 at the end of 2001 to nine currently. Once the market opens fully to global players, further consolidation is expected.
ANZ shares closed down 0.4% on Friday at A$28.13 ($21.89) in a market which fell 0.2%. ANZ had no advisor. AMMB Holdings was advised by ABN AMRO.
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