KUALA LUMPUR (Reuters) – Malaysia will scrap a proposed $20 billion merger that would have created the country’s biggest bank, after CIMB Holdings and RHB Capital failed to agree on new deal terms, people familiar with the matter said.
The merger would have formed a banking group with assets of about $190 billion, eclipsing Malayan Banking Bhd (Maybank) and making it Southeast Asia’s fourth-biggest bank. The state-backed deal was part of Malaysia’s ambitious plan to promote its firms as regional champions.
The scrapping of the deal is a major blow for CIMB Chairman Nazir Razak, the brother of Malaysian Prime Minister Najib Razak. Nazir spearheaded the bank’s expansion over the past 16 years, snapping up a domestic rival, lenders in Indonesia and Thailand and businesses owned by Royal Bank of Scotland.
CIMB shares had tumbled more than 26 per cent between Monday and the launch of the deal in early October, as investors questioned CIMB’s ability to extract synergy from the deal.
“We have been cautious on the mega-merger proposal, especially on synergy creation vis-a-vis the high merger cost,” Tan Ei Leen, analyst with Kuala Lumpur-based Affin Hwang Capital, wrote in a note to clients on Monday.
The CIMB share price fall dimmed the deal’s appeal, prompting RHB to seek an improved share swap ratio, and possibly cash, people familiar the with the situation said. A central bank directive against CIMB retrenching people for 24 months after the merger also posed difficulties.
On Tuesday, CIMB rallied as much as 11.4 per cent as investors breathed a sigh of relief that the deal was finished. RHB gained 1.9 per cent, while RHB was up 0.2 per cent. Malaysia’s benchmark share index was up 0.4 per cent.