BACKGROUND
Malaysia Building Society Bhd (MBSB)
The Malaysia Building Society Bhd (MBSB) Group operates as an Islamic Back through MBSB Bank regulated under the Islamic Financial Services Act 2013 (IFSA) that specializes and provides services in the following areas of banking, namely: –
1. Consumer Banking
Offers an array of retail banking solutions such as personal financing, property financing and wealth management products.
2. Commercial Banking;
Offers a range of financial and advisory services such as business financing, trade financing, cash management and treasury services to large financial institutions and the public sector.
3. Corporate Banking
Offers a variety of corporate banking services to large corporations and government-linked companies (GLCs) such as project financing, corporate financing and debt capital market solutions.
Malaysian Industrial Development Finance Bhd (MIDF)
The Malaysian Industrial Development Finance Bhd (MIDF) was primarily established to boost and promote the industrial growth amongst small and medium enterprises (SMEs) in Malaysia. Since its inception in 1960, MIDF had expanded its banking business and specialised in niche areas of services to provide a comprehensive range of investment banking and associated services to its corporate clients. Being a diverse financial institution, MIDF is a key player in the following business areas namely: –
1. Investment Banking
Offers a variety of investment banking products and services such as debt markets (conventional bonds, Islamic sukuk and loan/financing syndication), corporate finance (initial public offering (IPO), corporate advisory) and stockbroking.
2. Development Finance
Advancing and developing the industrial and manufacturing sector in Malaysia amongst SMEs through the issuance of grants and financing from governmental funds.
3. Asset Management
Offers Shariah-compliant fund management services to retail investors, statutory bodies, private pension funds and state government-related funds.
THE ACQUISITION
A. CHRONOLOGY
6 April 2022
MBSB Board announced that Bank Negara Malaysia had issued a letter stating that it has no objections in allowing MBSB to initiate negotiations with Permodalan Nasional Berhad (PNB) for the acquisition of PNB’s entire equity interest in MIDF by MBSB.
22 April 2022
MBSB and MIDF (the Parties) entered into an Exclusivity Agreement which granted the Parties exclusive rights to negotiate and finalise the terms and conditions of the acquisition.
12 October 2022
One of the conditions imposed by Bursa Securities as a result of the acquisition is the appointment of Kenanga Investment Bank Berhad (“Kenanga IB”) as the Independent Adviser. On 12 October 2022, Kenanga IB was appointed to act as the Independent Adviser. The role of Kenanga IB was to advise the shareholders of MBSB on the acquisition based on their opinion formulated as to whether the acquisition was fair and reasonable or to the detriment of the shareholders of MBSB.
21 October 2022
MBSB had submitted an application to the Ministry of Finance and Bank Negara Malaysia seeking their approval for the acquisition.
14 April 2023
MBSB announced that Bank Negara Malaysia and Ministry of Finance had issued a letter dated 13 April 2023 granting its approval for the acquisition.
9 June 2023
MBSB entered into a Conditional Share Purchase Agreement (SPA) with PNB to acquire the latter’s shareholdings in MIDF. The SPA is subjected to the following list of conditions precedent ought to be fulfilled by each party:
- Acquiring the approval from Bank Negara Malaysia and Ministry of Finance (approval remaining in full force and have not been withdrawn).
- MBSB
- Acquiring the approval from Bursa Securities for the listing and quotation of the consideration on the Main Market (approval remaining in full force and have not been withdrawn).
- The passing of a resolution by the shareholders of MBSB at the general meeting to approve the proposed acquisition (approval remaining in full force and have not been withdrawn).
- PNB and MIDF
- Acquiring the approval from the Securities Commission Malaysia for the change in controller/indirect shareholder of MIDF Amanah Investment Berhad (MAIB) and MIDF Amanah Asset Management Berhad (MAAMB) from PNB to MBSB (approval remaining in full force and have not been withdrawn).
Following the acquisition, MBSB will emerge as the sole shareholder possessing the entire equity interest previously held by PNB in MIDF. The acquisition involves the acquirement of 480,355,627 ordinary shares held by PNB in MIDF for the purchase consideration of RM 1,014,295,048.55. The purchase consideration shall be satisfied through the issuance and allotment of 1,050,828,629 new ordinary shares in MBSB at the issue price of RM0.9652 per ordinary share in favour of PNB.
23 June 2023
Bursa Securities through its letter had approved the listing and quotation for the consideration shares on the Main Market.
12 July 2023
Through an independent advice letter addressed to the shareholders of MBSB, Kenanga IB had stated that the proposed acquisition of the entire equity interest in MIDF is “fair, reasonable and not detrimental” to the interests of the shareholders of MBSB. Hence, Kenanga IB had positively recommended to the shareholders of MBSB to vote in favour of the resolution in approving the proposed acquisition.
27 July 2023
Through an Extraordinary General Meeting (EGM), the shareholders of MBSB had passed an ordinary resolution approving MBSB’s acquisition of the entire equity interest of MIDF held by PNB.
The votes tabulated from the EGM are as follows :-
FOR | AGAINST | |
No. of Shareholders | 656 | 105 |
No. of Shares | 5,005,888,699 | 326,884 |
(%) of Voted Shares | 99.9935 | 0.0065 |
Results | ACCEPTED | |
B. SHAREHOLDING STRUCTURE
PRE-ACQUISITION
a) MBSB
EPF holds 65.87% of the shareholdings in MBSB
b) MIDF
PNB holds 100% of the entire shareholdings in MIDF
POST-ACQUISITION
Upon completion, MIDF will emerge as a wholly owned subsidiary of MBSB. In return, PNB will become a prominent shareholder in MBSB possessing a 12.78% stake resulting in EPF’s shareholdings being reduced from 65.87% to 57.45% and the minority shareholders’ equity stake being reduced from 34.13 to 29.77%.
C. EFFECTS OF THE ACQUISTION
i) Business Impacts
- The formation of a comprehensive and well-capitalised financial services group that is financially capable to compete amongst other entities and groups in the financial services industry due to a stronger balance sheet.
- Given the opportunity to service a wider customer base that is able to extend and penetrate beyond the Parties’ respective pool of existing customers.
- The formation of an enlarged banking unit comprised of the Parties’ collective banking areas (consumer banking, commercial banking, corporate banking, development finance, investment banking and asset management) which will be devised as a result of the acquisition.
- Through the acquisition, the Parties would be able to scale up their existing clientele by leveraging on each other’s customer base. For instance, MBSB Bank’s customer base are mainly comprised of individuals and retail companies while MIDF’s clientele are predominantly corporate entities. As such, the Parties will be able to cross-sell their products and services to different customer segments.
- To offer a wider range of products and services through the Parties’ existing branches, self-service terminals, mobile and digital channels specifically targeted to their previously underserved customers.
- Create a more diversified and sustainable group that has a stronger market positioning.
- Able to overcome the inherent market and capital limitations previously faced by each party.
ii) Leadership
- A Group Leadership Committee will be established to nominate and appoint candidates in key leadership positions such as Group Chief Executive Officer and Group Chief Financial Officer of MBSB.
- As a result of the acquisition, Rafe Haneef has been appointed as the Group Chief Executive Officer of MBSB while Datuk Nor Azam Mohd Taib has revised his position as the Chief Executive Officer of MBSB Bank effective 1 July 2023.
- Further, PNB will also be entitled to nominate two individuals as directors of MBSB, in which one of whom shall be an independent director subject to the approval of Bank Negara Malaysia.
D. RISKS OF THE ACQUISTION
Operational Disruptions
Both parties possess distinct systems, procedures, guidelines, approaches, governance frameworks, organizational cultures, managerial approaches, methods for accounting, performance assessment and incentives. As such, there is an inherent risk of operational disruptions as a result of the integration between the two entities. Consequently, this may potentially result in a decline in customers and the departure of staff and management which could significantly impact the operational state of the group. Failure to retain the existing personnel who are accustomed to the banking services, products and management style would result in the cumbersome effort to hire and train fresh individuals on the newly acquired businesses.
Condition Precedent
The completion of the acquisition is subject to the condition precedents in the SPA. Hence, there is no guarantee that the conditions will be satisfied, acquired or sustained in a timely manner. Failure to fulfil the conditions as at the Long-Stop Date (three months from the date of the SPA, failing which the period shall be automatically extended for another one month) will render the acquisition not completed.
Compliance and Regulatory Risk
Following the acquisition, the group will be governed and subjected under the IFSA, Financial Services Act 2013 (FSA) and Capital Market and Services Act 2007 (CMSA). Hence, the newly formed group will be required to ensure that the existing practices and policies align and comply with the statutory requirements prescribed under the said Acts. Failure to comply may result in the suspension or revocation of the group’s licence and inhibit the group from operating.
Common Challenges in the Industry
Both parties are operating in the same industry of providing financial products and services. Thus, both parties are at a risk of facing the same difficulties and challenges previously encountered such as regulatory issues, liquidation and credit risks and asset impairment risk which are common to the nature of their businesses.
REFERENCES