Public Bank Bhd managing director and chief executive officer Tan Sri Tay Ah Lek (left) and Diona Teh Li Shian, the youngest daughter of the bank's late founder Tan Sri Teh Hong Piow, at a press conference on Thursday. Hong Piow, who passed away in 2022, also founded LPI Capital Bhd that mainly provides general insurance. (Photo by Zahid Izzani/The Edge)

KUALA LUMPUR (Oct 10): Public Bank Bhd (KL:PBBANK), the third-largest bank in Malaysia by assets, is acquiring a 44.15% stake in insurer LPI Capital Bhd (KL:LPI) for RM1.72 billion in cash from the family of the late Tan Sri Teh Hong Piow.

Teh, who passed away in 2022, founded Public Bank as well as LPI, which mainly provides general insurance. His estate holds a 1.41% direct stake in LPI and another 42.74% through its private vehicle Consolidated Teh Holdings Sdn Bhd.

On Thursday, Public Bank inked a conditional sale and purchase agreement with Consolidated Teh and the estate for the proposed acquisition of 175.9 million shares in LPI.

At RM9.80 per share, the acquisition price is a discount of 25% to LPI’s last price of RM13 before the stock was suspended from trading for the announcement. The price tag values LPI at 1.71 times its book value and 12.41 times its 2023 earnings.

On the discount, Diona Teh Li Shian said the valuation is in line with those of comparable companies in the global insurance industry.

"This price was negotiated based on a willing-buyer, willing-seller basis. Additionally, money is not a factor, it's more about realigning our interests," Li Shian, the youngest daughter of the late founder, told the media after the signing ceremony.

Upon completion of the acquisition, Public Bank will emerge as LPI's largest shareholder. Given the increase in shareholding, Public Bank is obliged to make a mandatory general offer (MGO) at RM9.80 per share to buy out all the LPI shares it does not already own.

Public Bank whets appetite for more M&As

Following the planned acquisition in LPI, Public Bank managing director and chief executive officer Tan Sri Dr Tay Ah Lek said the bank is also open for merger and acquisition (M&A) opportunities.

“We will have to assess from time to time whatever (M&A) that is viable. Definitely, we will consider. Our focus has always been on the new Indo-China countries. That will be our main focus on expansion for the time being. But if there's any viable project or viable company for acquisition, we are always open to it. As long as it brings value to the Public Bank growth,” Tay said.

Meanwhile, Tay said the management team of LPI will remain status quo after the proposed acquisition, given that the company has been well run by the current team.

Tay also added that Public Bank’s proposed acquisition of LPI is in line with the group's plan to expand beyond organic growth, but through strategic acquisition.

This acquisition also represents unique opportunities for Public Bank to move towards a universal banking model to offer comprehensive and diverse products and services, he noted.

"Through our network in Malaysia, LPI will be able to expand its distribution channel, and further grow its insurance business. In addition, we are also able to tap into sales and distribution of LPI and further expand our reach to customers of LPI," Tay said.

The bank intends to maintain LPI's listing status on the Main Market of Bursa Malaysia.

The transaction — to be financed with internal funds — is expected to positively impact earnings in the future.

The proposal is subject to the approval of Public Bank's non-interested shareholders at an upcoming extraordinary general meeting.

The bank has received approval from the Ministry of Finance and Bank Negara Malaysia, it said.

Barring any unforeseen circumstances and subject to all required approvals, the bank expects the proposals to be completed by the first quarter of 2025.

Shares in Public Bank were last traded at RM4.57, giving it a market capitalisation of RM88.71 billion, while LPI was last traded at RM13, valuing it RM5.18 billion.

Trading in Public Bank and LPI shares resumes Friday.