Avenue Assets Bhd, a diversified conglomerate controlled by a son of Malaysian Prime Minister Mahathir Mohamad, rejected an offer last night to sell PhileoAllied Bhd to Malayan Banking Bhd (Maybank) in an all-share transaction. Maybank, MalaysiaÆs biggest banking group, offered to swap one new Maybank share for every six PhileoAllied shares, valuing the target bank at M$1.2 billion ($315.8 million). That would have given PhileoAllied's shareholders a 3.3% stake in Maybank. The offer, which values PhileoAllied at 1.3 times shareholders' funds, was pitched roughly a third below market expectations, say analysts.
Avenue Assets said it was ôunable to supportö the merger scheme, according to statements from Maybank and PhileoAllied. Avenue Avenue holds 68.41 million shares, or 18.42%, in PhileoAllied. Industry executives say the matter is down to pricing.
"They could also be eyeing new parties that would be prepared to pay a premium for their assets," says Soon Teck Onn, analyst at Nomura International in Malaysia.
If the merger plans collapse, it would be a blow to MalaysiaÆs reform efforts; the government wants to reduce the number of banking groups from 54 to just 10. What's more, the government wants merger efforts to have progressed to the point where all merged entities will be able to offer combined financial statements from 1 January 2001.
For Avenue Assets, getting more cash is central to its ambitions. A property company before it was taken over by Mokhzani Mahathir, Avenue Assets is gearing up to become a stockbroking firm. It plans to raise M$562 million ($148 million) through a rights issue to take over three stockbroking companies û MGI Securities, Kestrel Securities and Soon Theam Securities. MGI Securities was shut down by Malaysia's stock exchange regulator during the recession for failing to meet prudential limits, and was subsequently taken over by special administrators.
Of the M$562 million Avenue Assets proposes to raise, M$289 million, or 51%, will go towards buying the three brokerages. The rest of the funds will go towards working capital needs. Avenue Assets would still have M$500 million in debts, but company executives want to pare these down to M$120 million to fund new businesses. This debt reduction would prove harder if Avenue Assets were to sell its PhileoAllied stake on the cheap.
AMMB-Utama merger unravels
But PhileoAllied is the only not merger candidate in difficulty. AMMB Holdings, the countryÆs fifth largest bank, has run into difficulties in its negotiations with Utama Banking group. The disagreements centre around management control.
AMMB, a big commercial lender owned by tycoon Azman Hashim, proposed a new financial holding company to hold the merged group, say analysts. Utama, the smaller banking group in the negotiations, is baulking because it does not want to lose control over its commercial banking operations.
Utama has a strong presence in Sarawak, in part due to its well-connected parent, Cahaya Mata Sarawak, which has close ties to the ruling Barisan Nasional party.
Utama's Sarawak connections have gained it friends in the right places. The group's objections to the terms of the merger and its own proposals have now gone all the way to the central bank. As analysts in Kuala Lumpur put it, either Utama gets a better structure or it gets anchor bank status.
No one is expecting Utama to walk away as the loser in this powerball fight.
