Friday, February 10, 2006

Southern Bank Update
Forced Marriage Or Arranged Marriage

The Edge Daily reported late on Friday on their website on the latest developments with Southern Bank. "Southern Bank Bhd (SBB), one of the country’s smallest banking groups, has outlined five criteria for any suitors, which it says are crucial to protect its shareholders and stakeholders’ interest. SBB chief executive director Tan Sri Tan Teong Hean said on Feb 10 the board was pursuing an alternative merger partner, after it had called off talks with CIMB Group Sdn Bhd on Wednesday. The five criteria would be to create value; allow shareholders to realise value; strategic vision; minimising disruptions and corporate governance, he said at a press conference in Kuala Lumpur.

The criteria are:
* Valuation, including potential upside value and risks;
* Transaction structure, which minimises completion risk and allows shareholders to realise value with minimal delays;
* Strategic vision and business fit, to ensure that synergies can be gained and branding can be leveraged; a friendly arrangement with harmony of approaches will be vital to retaining value;
* Integration plan that ensures risks are controlled and disruptions are avoided, and that provides for the earliest realisation of merger benefits; and
* Corporate governance and decision making that optimises value for the merged entity.

Well, now it looks as if Southern Bank is a girl who has been knocked-up, and her stomach is showing. Mr. Tan can do nothing else - has to marry her off - his only flexibility is in the choice of partner. Tan knows that he will be out of the picture if Nazir gets his way, maybe he can still stick around with Alliance Bank, who knows.

However, the thinking behind the media blitz could be a deeper strategy on SBB side. By voicing out the parameters for a partner, it opens up discussion and terms of the deal out to the open. It allows SBB to champion minority interests ahead of any merger plans. This media blitz may be shrewd enough to "allow" SBB to seek out more suitors. Already many banks have privately voiced dissatisfaction with Bank Negara's ruling that a bank can only seek permission to negotiate potential sale with one approved party. One failed negotiation may take up to 6 months to conclude. Also, by bringing this out into the open, SBB probably hopes to eliminate being "forced into a certain partner" whether they like it or not.

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