News
MERITS OF PROPOSED MERGER OF AVENUE AND ECM LIBRA - SHAREHOLDERS TO DECIDE
17 May 2006
Avenue Capital Resources Berhad (Avenue) has called for an Extraordinary General Meeting (EGM) on 18 May 2006 for its shareholders to vote on the proposed merger of Avenue and ECM Libra Berhad (ECM Libra) and the proposed exemption to ECM Libra and parties acting in concert from the obligation to undertake a mandatory offer.
The proposed merger involves proposed acquisitions of the entire equity interests in the operating subsidiaries of ECM Libra by Avenue International Capital Berhad (AICB), in consideration of the allotment and issuance of 442,000,000 consideration shares to ECM Libra. As a result of the proposed merger, the shareholdings of ECM Libra in AICB will increase from zero to approximately 53.2%.
As stated in the Circular to Shareholders, both Avenue and ECM Libra believes that the proposed merger is timely in view of the changing financial landscape where both groups can create a larger and more robust investment bank (IB) that is able to compete within a more competitive landscape. The proposed merger will also enable both AICB and ECM Libra to significantly reduce the cost of entry to be an investment bank. Both entities will collectively be able to meet the minimum capital funds requirement of RM500 million imposed by the regulators, without the need of injecting new capital. They will also be able to share the one-time RM52.5 million cost for one discount house licence in order to qualify for the IB status. Other benefits from the proposed merger include potential synergies to be attained from the integration process in terms of consolidated product range, increased revenue opportunities, enhanced human capital and economies of scale in administration and business support.
We are broadly supportive of this proposed merger as it is in line with the changing financial landscape for merchant banks, stockbroking companies and discount houses in Malaysia. Companies in this sector have to consolidate their positions, transforming themselves into IBs in order to remain competitive in the market. This merger provides Avenue and ECM Libra a cheaper and more expedient route to becoming an IB and the potential synergies of the merger will be beneficial to the shareholders of the enlarged AICB Group.
Whilst we are supportive of the rationale and benefits of the proposed merger, an important aspect for this exercise is the fair valuation of the entities involved. A few minority shareholders had expressed concern and dissatisfaction over the basis of valuation of ECM Libra and also valuation attributed to Avenue.
ECM Libra is valued at RM1.06 per share and the total market capitalisation is RM459.0 million, based on the closing market price of its shares as at 17 January 2006 (last trading date prior to the signing of the agreement between Avenue and ECM Libra). The market price of RM1.06 per share represents a price earnings ratio (PER) and price-to-book ratio (PBR) of 11.38 times and 2.11 times respectively.
Meanwhile, AICB is valued at RM0.66 per share (proforma market price of AICB after adjusting for rationalisation exercise), which is lower than the par value of RM1.00 of the 442,000,000 AICB shares to be issued to shareholders of ECM Libra. The value of RM0.66 per AICB share represents a PER and PBR of 7.38 times and 1.39 times respectively.
MSWG is of the view that:-
Minority shareholders should raise any of their concerns at the EGM and we would strongly encourage shareholders of Avenue to attend this EGM which may mark a significant turning point in the business direction of the company. Ultimately, shareholders will have to decide the merits of the proposed merger and vote appropriately.
Abdul Wahab Jaafar Sidek
Chief Executive Officer
Minority Shareholder Watchdog Group (MSWG)
Dated: 17 May 2006
17 May 2006
Avenue Capital Resources Berhad (Avenue) has called for an Extraordinary General Meeting (EGM) on 18 May 2006 for its shareholders to vote on the proposed merger of Avenue and ECM Libra Berhad (ECM Libra) and the proposed exemption to ECM Libra and parties acting in concert from the obligation to undertake a mandatory offer.
The proposed merger involves proposed acquisitions of the entire equity interests in the operating subsidiaries of ECM Libra by Avenue International Capital Berhad (AICB), in consideration of the allotment and issuance of 442,000,000 consideration shares to ECM Libra. As a result of the proposed merger, the shareholdings of ECM Libra in AICB will increase from zero to approximately 53.2%.
As stated in the Circular to Shareholders, both Avenue and ECM Libra believes that the proposed merger is timely in view of the changing financial landscape where both groups can create a larger and more robust investment bank (IB) that is able to compete within a more competitive landscape. The proposed merger will also enable both AICB and ECM Libra to significantly reduce the cost of entry to be an investment bank. Both entities will collectively be able to meet the minimum capital funds requirement of RM500 million imposed by the regulators, without the need of injecting new capital. They will also be able to share the one-time RM52.5 million cost for one discount house licence in order to qualify for the IB status. Other benefits from the proposed merger include potential synergies to be attained from the integration process in terms of consolidated product range, increased revenue opportunities, enhanced human capital and economies of scale in administration and business support.
We are broadly supportive of this proposed merger as it is in line with the changing financial landscape for merchant banks, stockbroking companies and discount houses in Malaysia. Companies in this sector have to consolidate their positions, transforming themselves into IBs in order to remain competitive in the market. This merger provides Avenue and ECM Libra a cheaper and more expedient route to becoming an IB and the potential synergies of the merger will be beneficial to the shareholders of the enlarged AICB Group.
Whilst we are supportive of the rationale and benefits of the proposed merger, an important aspect for this exercise is the fair valuation of the entities involved. A few minority shareholders had expressed concern and dissatisfaction over the basis of valuation of ECM Libra and also valuation attributed to Avenue.
ECM Libra is valued at RM1.06 per share and the total market capitalisation is RM459.0 million, based on the closing market price of its shares as at 17 January 2006 (last trading date prior to the signing of the agreement between Avenue and ECM Libra). The market price of RM1.06 per share represents a price earnings ratio (PER) and price-to-book ratio (PBR) of 11.38 times and 2.11 times respectively.
Meanwhile, AICB is valued at RM0.66 per share (proforma market price of AICB after adjusting for rationalisation exercise), which is lower than the par value of RM1.00 of the 442,000,000 AICB shares to be issued to shareholders of ECM Libra. The value of RM0.66 per AICB share represents a PER and PBR of 7.38 times and 1.39 times respectively.
MSWG is of the view that:-
- The Board of Avenue should address the concerns raised by minority shareholders at the EGM to facilitate them to make informed decisions on the proposed merger, which include amongst others the fair valuation of Avenue and ECM Libra, management team of the enlarged AICB Group moving forward, etc.
- Independent Adviser to briefly explain to shareholders on their evaluation of the proposed merger and how they arrive at the conclusion that the proposed merger is fair and reasonable and not detrimental to the shareholders of Avenue/AICB.
- Independent Directors of Avenue to share their views with shareholders in regard of the proposed merger.
Minority shareholders should raise any of their concerns at the EGM and we would strongly encourage shareholders of Avenue to attend this EGM which may mark a significant turning point in the business direction of the company. Ultimately, shareholders will have to decide the merits of the proposed merger and vote appropriately.
Abdul Wahab Jaafar Sidek
Chief Executive Officer
Minority Shareholder Watchdog Group (MSWG)
Dated: 17 May 2006
