2 possible scenarios in the Eximbank-Sacombank merger

Check out which scenario is more favorable.

Maybank Kim Eng looks at two merger scenarios.

In Scenario 1, EIB acquires the 90% of the STB shares it does not currently own from a combination of a tender offer for 30% of the outstanding shares and by purchasing about 50% of STB’s outstanding shares from the other (undisclosed) members of its syndicate (it is widely understood that EIB led the takeover of the bank by a larger group of “behind the scenes” large investors).

Here's more from Maybank Kim Eng:

In this scenario we actually used a discount for the share price purchase of just over 20% rather than a takeover premium because of the circa 70% run-up in the stock price in the lead up to the take-over announcement, and because 50% of the outstanding shares are probably already in friendly hands.

In Scenario 2, we assume EIB will acquire the stake in STB via 1-for-1 share swap, based on the fact that the market capitalisation and shareholders’ funds of both banks are almost equal.

We prefer the second scenario as the first would require EIB to raise some VND16,186b in cash, vs. its FY12 shareholders’ funds of VND 15,800b. Moreover, there is a precedent for Scenario 2: this was the method by which SHB and HBB, two small banks, were merged.

We also think that STB is over valued at FY13F PER of 12.9x and P/BV of 1.6x. The P/BV assumed for acquisition should be 1.1x which is in line with EIB’s current valuations. It is not likely that EIB should pay more than its own valuations particularly since its ROE is higher.