Hong Leong to Acquire Public Bank – A Matter of Time?





Oct 19 2009
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Public Bank is perhaps one of the stocks everyone would like to own for obvious reason. If you owned 1,000 Public Bank Berhad (KLSE: PBBANK, stock-code 1295) shares back in 1967, you would have 129,720 shares which is worth a whopping RM1.38 million today. If that is not enough to raise your eyebrows consider another RM391,000 gross dividends paid to you ever since and you’re looking at an investment that gives you compounded annual return of more than 20% for each of the 42 years. With your Public Bank stock’s investment you can easily place a call to Warren Buffett and claim your trophy.

Public Bank is also one of the banking stocks that stood stubbornly without a free-fall during the global financial crisis. I’ve wrote that while I like Public Bank for its conservative yet prudent management style which made the stock able to stand against the strong turbulence over the numerous past crisis or recessions, this is also a company that does not spell out its succession plan clearly enough to convince investors that should the founder Teh Hong Piow was no longer around, the company will continue its journey without much hiccups.

Public Bank stock chartHong Leong stock chart

It’s no secret that the 78-year-old Teh Hong Piow has a “close model friend” from East Malaysia who was crying over a business deal gone sour but finally managed to get the sole Malaysian franchisee rights to the prestigious Ford Supermodel contest. Hmm, wonder who will be her sponsor for the contest *grin*. It’s also a well known fact that billionaire Teh Hong Piow was hospitalised for so-called minor operation recently. But not many know the seriousness of his health. Of course you don’t expect Public Bank’s spokesperson to tell you the truth about the tycoon’s condition lest the company wish to see the stock tumbles.

While many investors sing songs of praises of Public Bank’s stock the same cannot be said about the bank’s employees. Most of the employees do not like the idea that they’re somehow being force to commit certain quota in bringing sales to the company although they’re not in the sales department. Some were heard complaining about being forced to perform during the annual dinner to the delights of the tycoon. But if the recent indefinite postponement or cancellation of annual dinners is anything to go by, you may wish to evaluate your portfolio especially if you’ve Public Bank stock. Speculation is running wild “quietly” that Teh Hong Piow’s health is deterioting and the risk of holding the stock has since gone up.

Teh Hong Piow

From a mere S$130 a month working as a clerk in Oversea Chinese Banking Corp (OCBC) in 1950 to becming Malaysia’s third richest person with an estimated RM8.2 billion in wealth, it is sad to note that none of Teh Hong Piow’s four children (three daughters and a son) will continue to build or at least maintain the empire built more than four decades ago. Although Teh Hong Piow has his most-trusted man, Managing Director Tay Ah Lek, in position to continue the banking business after he’s no longer around, the most likely scenario is a Merger and Acquisition will take place. The question – who will be the lucky person to be granted the authority to acquire the crown jewel Public Bank Berhad?

Tay Ah Lek

With the current political landscape it’s easy to point the finger at none other than tycoon Quek Leng Chan, the founder of Hong Leong Group Malaysia which owns Hong Leong Bank. Prime Minister Najib’s fourth brother, Mohamed Nazim Razak, is the non-executive director of Hong Leong Bank Berhad (KLSE: HLBANK, stock-code 5819). With not much time left you can’t blame the senior Teh for enjoying his life to the fullest now but he would have definitely negotiated for the best price for his stake in Public Bank Berhad. After all he has been working very hard in building the empire so it’s only natural for him to claim the last trophy (premium).

Hong Leong Bank Acquires Public Bank

Nevertheless Quek is no ordinary businessman so expect him to put in all his efforts in acquiring the best managed bank with cheapest possible offer-price. Furthermore political advantage is on Quek’s side hence there should not be any hindrance from the Central Bank. The biggest question is whether the current Najib’s administration would allow Hong Leong Bank to become such a giant (if merged with Public Bank) that it would undermine government-linked-banks such as largest lender Malayan Banking Berhad’s (KLSE: MAYBANK, stock-code 1155). But then Najib can always grant his brother Nazir Razak’s Bumiputra-Commerce Holdings Berhad (KLSE: COMMERZ, stock-code 1023) the go-ahead to acquire MayBank, can’t he?

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Comments

hey stocktube! howdy!this rumour is indeed brewing hot in the banking industry. holding PB shares may be a risk due to teh's health but if an acquisition is to take place, it might be a good move to hold it, dont you think? that certain model from east malaysia will certainly be looking for other sponsors very soon :)

hello zewt,great to hear from you … yeap, in normal M&A circumstances it would be good news to public bank but we're talking about premium that public bank is commanding because of teh hong piow … without teh around, the business model may change hence investors may re-evaluate their portfolio … furthermore if it's indeed hong leong that would be acquiring, quek may just acquire teh's 20+% block of shares so public will not get the juices …but then i may be wrong :Pcheers …

well, my initial view would be the share would certainly take a hit if THP is no longer around. that would be a good time to stock up.

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