Public Bank Bhd has acquired 44.15% equity stake in LPI Capital Bhd, the 7th largest insurance company in the country by gross direct premium that controls 7% of market share in general insurance.
Formerly known as London & Pacific Insurance Company Berhad, LPI Capital is an investment holding company which operates through its wholly-owned subsidiary, Lonpac Insurance Bhd. As at midday Oct 11, the market capitalisation of LPI Capital is estimated at RM5.0 billion, approximately 6% of Public Bank's market capitalisation of RM84.8 billion.
Public Bank is eyeing for more sharing of resources and cross selling in the near-term to take advantage of LPI Capital's market share in the general insurance business, in addition to the bank's existing exposure in the insurance sector through the 30%-owned AIA Public Takaful Bhd, according to Kenanga Investment Bank Bhd (Kenanga Research).
In fact, prior to the acquisition, LPI Capital also benefitted as an affiliate of Public Bank via their mutual parent holding company, Consolidated Teh Holdings, whereby about 25% of LPI's business is said to be direct referrals from Public Bank.
The 44.15% acquired stake of LPI Capital includes the ownership shares held by Consolidated Teh Holdings Sdn Bhd (42.74%) and The Estate of the Late Tan Sri Datuk Sri Dr Teh Hong Piow (1.41%), costing RM1.72 billion (or RM9.80/share).
Kenanga Research has maintained its OUTPERFORM call and a target price of RM5.10 for Public Bank. As at 12:35pm Oct 11, Public Bank's shares traded at RM4.37. (Stock updates from Bursa Malaysia)
On the other hand, LPI Capital has been awarded an OUTPERFORM call with a target price of RM15.00, along with a REJECT OFFER concerning its minority shareholders.
According to analysts, the acquisition could trigger a mandatory general offer (MGO) to minority shareholders who are expected to refrain from acceptance due to the 28% discount to LPI Capital's prevailing market price at RM12.58 as at 12:35pm Oct 11. (Stock updates from Bursa Malaysia)
Consolidated Teh Holdings will progressively reduce its stake in Public Bank to 10.0% over the course of five years to comply with the Financial Services Act, through a restricted offer for sale (ROFS).
More details are expected to emerge in the future on the ROFS, including allocation methodology for the portion of shares distributed to employees, directors and eligible shareholders of the group at a discount.
The move translates to an average disposal of nearly 40 million of Public Bank's shares per month over sixty months into 2029.
Analysts believe this may not disrupt existing market participation. As at 2:46pm Oct 11, the daily volume traded after the announcement on acquisition amounted to 100 million shares (100,461,700), compared to the pre-announcement daily volume recorded at 12 billion (12,180,900) shares on Oct 8. Public Bank requested for the suspension of its counter on Oct 9 and Oct 10.
Through the acquisition, LPI Capital is expected to be able to more directly tap into Public Bank's ecosystem via sharing of branch networks and sales personnel to promote its general insurance products. Meanwhile, the acquisition would enable Public Bank to more immediately serve a full suite of financial products towards a "Universal Banking Model".
