By RUPINDER SINGH

Independent adviser, AmInvestment Bank Bhd, has recommended that shareholders of Public Bank Bhd (PBB) vote in favour of the proposed acquisition and subsequent mandatory general offer (MGO) for LPI Capital Bhd.

In an advisory note filed with Bursa Malaysia Securities today, the adviser concluded that the terms of the acquisition are both fair and reasonable based on financial valuations, strategic benefits, and market comparisons.

The proposal involves PBB acquiring 175.9 million shares of LPI, representing a 44.15% equity interest, for a total consideration of RM1.72 billion (or RM9.80 per share).

Upon completion, PBB’s stake in LPI will trigger a mandatory general offer for the remaining shares, in line with Bursa Malaysia regulations.

AmInvestment Bank provided several key reasons why the acquisition and MGO are considered fair and reasonable.

First, the purchase price of RM9.80 per share was determined based on a range of financial benchmarks, including price-to-book ratio (PBR), price-to-earnings ratio (PER), and EV/EBITDA multiples, in line with other recent acquisitions in Malaysia’s general insurance sector.

These metrics indicate that the offer price is competitive and reasonable within the context of comparable transactions, such as the acquisition of AmGeneral Insurance Bhd and MPI Generali Insurans Bhd.

Notably, the implied PBR of 1.71 times for LPI aligns well with the industry average for similar transactions, which range from 1.38 to 2.11 times, underscoring the fairness of the offer price.

By acquiring a substantial stake in LPI, PBB is positioned to enhance its insurance offerings, expanding its footprint in the general insurance market through LPI’s established customer base of over 800,000 active policyholders.

The independent adviser noted the synergistic potential of the acquisition, as it would enable PBB to offer a more comprehensive suite of financial services to its customers.

It said that the complementary alignment is expected to be value-accretive, leveraging cross-selling opportunities across PBB’s existing financial products and enhancing overall revenue.

The acquisition allows PBB to consolidate LPI’s positive financial performance, which includes an operating revenue of RM1.91 billion and a profit after tax (PAT) of RM313.7 million for the financial year ended December 31, 2023.

LPI’s consistent profitability and strong market presence are expected to contribute positively to PBB’s bottom line, improving its consolidated financial performance.

The adviser noted that this prospective return on investment further supports the acquisition’s reasonableness from a financial perspective.

AmInvestment Bank said the offer price represents a notable discount compared to LPI’s recent share prices, reflecting a 21.16% to 24.73% discount to the volume-weighted average price over various time frames leading up to the offer date.

This discount enhances the attractiveness of the acquisition to PBB, allowing it to secure a strategic asset at a favorable price point.

Shareholders, it said, are thereby afforded an opportunity to realize value at a level aligned with industry norms while also benefiting from future upside in PBB’s share value.

The independent adviser acknowledged potential risks, such as integration challenges and competitive pressures in Malaysia’s general insurance market.

However, it noted that these risks are manageable, given PBB’s existing presence in the sector and experience with insurance operations through its associated companies.

The adviser further highlighted that PBB has mechanisms in place to address these risks, including effective integration strategies and the capability to leverage its well-established infrastructure and distribution network.

PBB’s board of directors, excluding interested parties, expressed unanimous support for the proposals, citing alignment with the group’s long-term strategy of becoming a universal banking model and expanding its product offerings.

The board recommends that shareholders carefully consider the independent adviser’s endorsement and vote in favor of the proposal at the forthcoming EGM.