[Investment] CIMB-RHB-MBSB Three-way Merger

This is a continuing blog from my previous post on Why mergers fail to unlock the expected synergy?. The three-way merger somehow garnered my interest since it has been on the news headlines for almost half a year and it is by far the biggest corporate deal in Malaysia (up to RM94 billion) - although the deal didn't come through.

For ease of understanding and to cut a long story short, so here's the compiled news headlines for the proposed three-way merger ranked by chronological order. 

Date	News Headline
09-Jul-14	Stocks trading suspended
10-Jul-14	BNM approval to commence negotiation and exclusivity agreement between CIMB, RHB and MBSB
08-Sep-14	EPF: Right to vote on merger critical to protect members’ interests
09-Sep-14	RHB Cap unlikely to be priced at significant premium if EPF allowed to vote
30-Sep-14	Abu Dhabi reaches out to M’sia
08-Oct-14	RHB and MBSB boards agree to proposed merger
09-Oct-14	Mega bank merger terms concluded to see share swap between CIMB-RHBCap, formation of mega Islamic bank
10-Oct-14	CIMB’s shareholders to hold 70% stake in enlarged banking group
13-Oct-14	Malaysia's three-way bank deal is far from done
13-Oct-14	Moody's: Mega bank merger credit negative for CIMB Islamic Bank, benefits RHB
14-Oct-14	Mega bank merger credit negative for CIMB Islamic Bank
15-Oct-14	MBSB will cause asset quality weakness in merged mega bank: Fitch
21-Oct-14	Bank merger plan can still proceed even if EPF is not allowed to vote
21-Oct-14	CIMB, RHBCap, MBSB share trade suspended pending annoucement
23-Oct-14	RHBCap shares fall 0.2%, CIMB down 0.6%, MBSB drops 1.5% after EPF disallowed from merger vote
24-Oct-14	Abu Dhabi state fund asks for more in $22 bln Malaysia banking deal
30-Oct-14	EPF will not trim stake in CIMB
30-Oct-14	Bursa to decide on EPF vote
31-Oct-14	CIMB-RHBCap-MBSB post merger integration to cost RM1.4b
03-Nov-14	Merger valuations seem fair, but will Aabar accept?
20-Nov-14	Aabar now in favour of mega merger
01-Dec-14	Merger will go through “with or without EPF”, says Nazir
10-Dec-14	Bursa says no to EPF’s appeal to vote in banks merger
17-Dec-14	Potential revision in Malaysia Building Society’s offer price
14-Jan-15	Merger deal is off, confirm CIMB, RHBCap and MBSB
15-Jan-15	Aborted mega bank merger highlights tougher environment, says Fitch
16-Jan-15	Market relief on aborted merger

(Sources: Financial Daily The Edge)

The implications on stocks performance

It's late and I'm starting to counting star, so here's a chart that explain all:-

Shares performance (return in %) of MBSB, RHB and CIMB from 01 Jul 2014 - 20 Jan 2015

(Click image to enlarge)

• Three key events (based on the date of Bursa announcement) are highlighted as it had triggered the stocks to move more than +-10% (i.e the start of negotiation, the proposal of the merger, the appeal for EPF's voting rights was rejected and the cease of proposed merger).
• MBSB: As a target company of the three-way merger, the shares performance had been fueled with positive momentum since the negotiation started and proposed merger announced. The surge of shares price was due to the fact that investors are chasing after the arbitrage over the proposed cash offer price of RM2.82 vs. market price. However, the stocks started to head south after the EPF (major shareholder) voting rights was rejected and the deal was ceased.
• CIMB: The shares performance is worst off since the start of the merger's negotiation as there were negative views on the asset quality and credit rating post-merger. Market relief with sign of stocks rebounding prior the announcement of the withdrawal of the proposed merger.
• We can see that the market actually reacted significantly for all three stocks days (or a week) before the official Bursa announcement on the withdrawal of three-way merger. Was there some noise in the market or was there any party who had the advantage of superior information?
• So who is the biggest loser? From the chart above, CIMB is the biggest loser with its market value depreciated -19.5% since the 1 Jul 2014 (vs. RHB: -8.5%; MBSB:-2.4%). 
• However, investors who are emotional and acted on news flows could also be the biggest loser as well, i.e. investors who bought MBSB shares after the announcement of the proposed merger and hoping the deal to seal (to receive the offer cash consideration) may lose of up to -24%.
• Of course with high trading volume and liquidity during the period, it did provide a good opportunity for traders as well.

Thoughts of the day:

Propose transactions are just proposal, anything could happen.
There's no done deal, until Bursa Announcement say so.

Information asymmetric do exist, you may be too slow to react.
Life is not fair, same goes to the market.