Malaysian Maybank's acquisition strategy

There was excitement on the 51st floor of Menara Maybank when the top executives hosted a media conference to announce the group's acquisition of a 44.6 percent stake in Singapore stockbroker Kim Eng Holdings Ltd.

The process of building up Maybank's investment banking unit has been on Wahid's to do list since taking over as the group's CEO. The search, as Wahid puts it, has been wide and during that time, the banking giant is said to have scouted other possibilities which included the prospect of buying OSK Investment Bank.

Pricing on that deal has been a stumbling block and when the opportunity to acquire Kim Eng came about, the group's key personnel cobbled together over the last month to make the acquisition work.

The deal for Kim Eng, which Maybank wants to ultimately own 100 percent , fits into the strategic objectives of the banking group where it wants to be a regional financial services leader. It has, in recent years, been putting pieces into that puzzle through the acquisition of stakes in banks in Vietnam and Indonesia to complement its already dominant position in Malaysia and a strong franchise in Singapore, which is the largest commercial banking operation outside of the big three in the republic.

The gap in its regional blueprint all along has been an investment banking offering, which is now plugged by the acquisition of Kim Eng.

The deal for Kim Eng satisfies two of the five strategic objectives within Maybank which is to be a leading wholesale bank in Southeast Asia that could eventually branch out to China, India and the Middle East and the other is to have its regional franchises contribute about 40 percent of group pre-tax profit by 2015.

The other three broad aims are to be the undisputed retail bank in Malaysia by 2015, to become a domestic insurance champion with growing regional presence and to be the largest Islamic bank in the region.

Analysts have commented that the acquisition of Kim Eng was a coup for Maybank, given the size of Kim Eng in the broking business in this region. As it stands, about 10% of Kim Eng's income comes from investment banking advisory work and the remainder is from equities buying and selling.

Kim Eng is the top stockbroker in Thailand, second in the Philippines, third in Indonesia and fourth in Singapore.

Reports do indicate that the price paid for Kim Eng at 1.91 times book value, although at the high end of valuations for stockbrokers, was all right, given the size and reach of Kim Eng stockbroking business.

As many analysts see Kim Eng contributing a small percentage bump to Maybank's group earnings, given the additional cost of the debt Maybank would have to take on to complete the RM4.26bil purchase, Maybank's share price dropped marginally by 2 sen to RM8.99 after announcing the deal. Kim Eng shares, however, surged 34 cents to S$3.04 as the offer price by Maybank at S$3.10 a share was a record price for Kim Eng.