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1.0

BASIC TERM & DEFINATIONS OF M&A a) Merger : One firm absorbs the assets and liabilities of the other firm in a merger. The acquiring firm retains its identity. In many cases, control is shared between the two management teams. Transactions were generally conducted on friendly terms. b) Acquisition : Traditionally, the term described a situation when a larger corporation purchases the assets or stock of a smaller corporation, while control remained exclusively with the larger corporation.

2.0

ABOUT THE BANKS 1. Maybank The Maybank Group is Malaysias financial services leader with a network of over 2,100 offices in 17 countries worldwide. Maybank had branches operational in numerous parts of Malaysia as well as Singapore, Brunei, Hong Kong and London. The bank also has large interests in Islamic banking through Maybank Islamic Berhad and insurance via its Etiqa subsidiary.The Bank is principally engaged in the business of banking in all aspects, which also include Islamic Banking Scheme operations. In 2011, Maybank was ranked at 458th in the Forbes Global 2000 Leading Companies with market cap of USD 20.98 billion. 2. CIMB Bank CIMB Group is a regional universal bank operating in high growth economies in ASEAN. CIMB Group has the widest retail branch network across the region and is an indigenous ASEAN investment bank. CIMB Group has presence in 14 countries, covering ASEAN and major global financial centres. The principal activities of the Group are those of investment holding, management company, property management, provision of consultancy services and dealing. In 2011, CIMB was ranked at 465th in the Forbes Global 2000 Leading Companies with market cap of USD 19.51 billion. 3. RHB Bank In 2011, the RHB Banking Group is currently the fifth largest fully integrated financial service group in Malaysia. RHB Bank is one of the 9 anchor Banks in Malaysia and offers a comprehensive range of financial products and services ranging from retail, commercial and corporate banking to Islamic products and services and electronic banking. RHB Bank has built an extensive branch and Sales and Service Outlets network of over 200 offices throughout Malaysia. RHB Bank also has a regional presence in the region with branches in Singapore, 1

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Bangkok and Negara Brunei Darussalam. In 2011, RHB was ranked at 1097th in the Forbes Global 2000 Leading Companies with market cap of USD 5.63 billion. 3.0 THE ISSUES : MERGER

After reading and analyzed all the sources related to the issue, in my own review, I would like to highlight the 2 main points below : 1. How much would Maybank or CIMB pay for RHB? We might have been wondering what is the maximum price would Maybank or CIMB pay for RHB? Is RM10.80 per share a "deal breaker"? Management of Maybank and CIMB have been saying that they will only do the deal if the deal is earnings accretive (i.e. EPS should be higher for the combined entity than the EPS of the standalone acquiring bank). Based on this presumption, we may do a simple merger analysis to compute what is the maximum price that will be offered by both Maybank and CIMB (under a 100% share exchange) scenario. 2. Why Maybank and CIMB gave up on RHBCap? It is to believe that the main stumbling why Maybank and CIMB gave up on the merger process due to the blocks were pricing and divergent interests. Of course, between the dates, Abu Dhabi Commercial Bank (ADCB) made a significant headline when it sells its 25% stake in RHB Cap to its sister company, Aabar Investment, for RM10.80 per share, which value RHB Cap at 2.25 times RHB Cap book value. 4.0 CONCLUSIONS

After reviewing in the case of merger between Maybank-RHB Cap-CIMB, I would consider there may have pros and cons for both companies if one of them proceeds to acquiring RHB Cap. 1. Goals By understanding the goals of each organization, either the management of Maybank or CIMB will have an easier time understanding whether they should complete the deal or not. A consolidation of the banking sector was at the heart of Prime Minister initiative to create regional banking champions, as part of the government's plan to increase investment in the Southeast Asian nation and move it up the value chain for both companies.

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2. To gain economies of scale A takeover by Maybank would have created the biggest banking group in Southeast Asia by market value, at around $28.4 billion. While a CIMB-RHB merger on the other hand, would see a combined market capitalisation of US$27.3 billion, just marginally below DBS but overtaking both Singapores OCBC and UOB. So, both Maybank and CIMB would exceed the $27.3 billion of Singapore's DBS. 3. Expansion of business license One of attraction of RHB Cap is that they already have 7 branches and full license in Singapore. CIMB has a limited banking license in Singapore, and with its 2 branches, this will fill a gap in its regional map and grow CIMBs lending business there. But the acquisition allows it to raise its exposure in Singapore to 9 branches. As for Maybank, with its 22 strong branch network in Singapore, this would solidify further Maybanks position as the largest foreign bank in that country. So, Maybank may benefit from the increased distribution reach in Singapore with its own 22 Maybank branches strengthened by seven RHB Banks branches, where there is minimal duplication in terms of branch proximity. Bottom-line, RHB Banks corporate centric loans complement Maybanks consumer centric loan profile. 4. Products / Services On the surface, Maybank will benefit from RHB Caps strong government and corporate lending business, as they relatively stronger in the small and medium enterprise loan segment. For CIMB, adding RHB Caps business on top of its own strengths in that area would not mean duplication of business but will large it size and expanse the business area. 5. Brand considerations Either Maybank, CIMB, or RHB, they already have their own and unique identity in representing their own brand and corporate image. Maybank for example, has been leading in Malaysia banking industry for over three and a half decades. So, if merger happen, Maybank or CIMB can keep their own identity and demote other. The strongest name becomes the company name and the weaker one is demoted to a divisional brand or product brand. 6. Business synergy The functions of synergy allow for the enhanced cost efficiency of a new entity made from two smaller ones - synergy is the logic behind mergers and acquisitions. By having full Islamic banking license from BNM, the merger will propel Maybank to become a truly Pan-Asean franchise, leading the wholesale and

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Islamic banking platform in all major markets. In addition, RHB Bank's presence in Thailand (it has one branch currently) will also snugly fit into Maybank's entrenched investment banking business in the country through Kim Eng Thailand. A prized asset of RHB Cap is its new retail banking model Easy by RHB of 155 outlets which has been highly successful in penetrating the mass market customer segment. This would plug the gap for CIMB which largely focuses on the more affluent consumer segment.

7. Business disruption As a result of the difficulties in merging operations, systems, and employees, business disruption can occur. This can take the form of erratic inventory levels, late shipments, and missed deadlines. These disruptions can ultimately affect the company's revenues, margins and profits. Given the fact that Hong Leong now will be busy merging with EON Capital over the next two years, it could be a distant future before it would consider another merger. Perhaps, investors were definitely looking forward to CIMB buying RHB Cap because CIMB was well integrated with other financial institutions previously. An integration would have reaped real operational benefits for RHB Cap. But there has to be a complementary fit for CIMB. With the group already having a market leading foothold in Malaysia via its investment and corporate banking franchise, acquiring RHB Capital solely for scale would certainly be value-destructive to CIMB, especially if one were to consider the larger degree of revenue and business duplication between CIMB-RHB. As for Maybank, Kim Eng is of a different scale. They does not have an investment banking operation outside Malaysia so there's no overlap there, hence not much integration that is needed to be done. This should not be a stumbling block in the bank's bid for RHB Cap. 8. Time consuming Back in 2006, same situation when Southern Bank comes into play; it wasn't a good time for CIMB but they had to move or risk missing out forever. But, it is clearly shows that CIMB has a track record in creating value from bank mergers that is unparalleled in Asia and beyond Asia. Such an outlook would require a reasonable time frame for Maybank too, given the number of acquisitions that Maybank would have to digest over the next few years, notably Kim Eng and Indonesias bankgroup PT Bank Internasional Indonesia (BII) Tbk. Maybank and CIMB may think that the merger talks would takes a long time to consider, and it may affects the day-to-day operations of RHB Bank. Just like EON Cap, many of their staffs are turning to other banks while Hong Leong Bank is launching and fighting its merger plans.

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9. Effect on management due to political issue in the banking industry It is questionable and wondering why Bank Negara is pushing hard for the RHB merger with the two largest banks in Malaysia as this would lead to foreign exchange outflow and unhealthy monopoly. The merger twist started when Abu Dhabi Commercial Bank (ADBC) selling its 25% share in RHB to ADBCs sister company, Abbar Investments at a relatively high price, which has complicated the proposed takeover of RHB. Indirectly, this would also lead to foreign exchange outflow from the country and only benefited to ADBC in view at our Malaysia banking expense. 10. Unhealthy monopoly Perhaps the merger would not add any value to the market this time as it was a purely local exercise involving domestic players that serve a similar clientele. The merger may lead to a bigger monopoly in the financial sector that recent crisis involving USs Lehman Brothers. Historical lessons have proved that big company does not equate better. It has more difficulty sustaining in time of crisis as can be seen in the case of the Lehman Brothers, Citigroup, and the American Insurance Group. 11. To reduce managerial staff and to make better use of an existing sales force Greater complementary fit in business and revenue lines favoured for Maybank-RHB versus CIMB-RHB will ensure that the former pair could potentially result in lower staff attrition and possible VSS (voluntary separation scheme) costs post-merger. As for CIMB-RHB is likely to be overstaffed in the corporate and investment banking segments but Maybank which is aggressively building its corporate and investment banking business both domestically and on a regional scale, would require the additional staff and expertise from RHB Bank. 12. Professional Ego It is precisely for this reason that for CIMB, this bid for RHB Cap is crucial on so many levels, including professional ego. Being second can be vexing for CIMB, which has built outstanding franchises in the domestic commercial and investment banking businesses and has steadily gained much ground in the region, namely in high growth spots such as Indonesia and Thailand. Even with all that, when it comes to key banking barometers such as total assets, market value and market share (loans and deposits), it has long been second to Maybank. If market wags are to be believed, CIMB had also tried to swoop in for Kim Eng just as news leaked that it was on Maybank's cross hair. But it was too late. 13. Risk of overpaying

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RHB Cap's share price has weakened by about 12% since news of the bigger banks pulling out from a merger emerged. This was after Aabar inked a deal to buy a 25% stake in RHB Cap from sister company Abu Dhabi Commercial Bank at a hefty RM10.80 a share - or 2.25 times the bank's book value - which set the valuation bar too high for a merger to happen. In comparison, the last bank takeover in the country, Hong Leong's acquisition of EON Cap earlier this year was done at only 1.4 times book. Pricing wise is important but it wont be anywhere as exciting as what ADCB could get from its block on a stand-alone basis. Aabar has transacted the purchase on a willing buyer-willing seller basis after thorough analysis and believes RHB Cap is a good investment in the long term. During takeover of Southern Bank in 2006, CIMB paid 2.2x of book value but that was a perfect match. But referring to the RHB Cap, this is not quite the case here. The banks will not pay more than what they value themselves at. If that happens, they are better off walking away from the deal. As for Maybank, dont forget, last time it was only three years ago when the market chastised Maybank for paying a steep price (over 4x book) for BII. But not to repeat the unlikely situation, more so as Maybank has been thoroughly revamped and made careful analysis over since.

Mergers can fail for many reasons including a lack of management foresight, the inability to overcome practical challenges and loss of revenue momentum from a neglect of dayto-day operations. In many ways, this is a giant battle among equals. If both takeover offers lopped on the table are similar, the board of RHB Cap would be in a tough spot to make the choice. But pick it must as the board ought to recommend only one offer for shareholders to vote on. If this happens, qualitative factors will kick in such as future growth of the merged entity, execution risks and so forth. Indeed, this is a very close fight, unlike anything Malaysia Inc has ever witnessed and it's hard to shrug off the sense of desperation in the air. But one must be careful not to be carried away. The corporate sidewalk is littered with examples that the one who walks away with the prize is not always the biggest winner. Who between the two would dare pay the price for that? So, contrary to market expectations and given the apparent lack of overall synergies, despite having two potential competing bids, both banks would be mindful of overpaying.

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