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Thursday, April 7, 2011

Another dubious report??? MAAB's sale to Zurich, too good to be true?

Btimes just issued a news report (Click here for the report) on MAA's sale of its 70% stake in Malaysian Assurance Alliance Bhd (MAAB) to Zurich at a price of RM1.2bil!!! This just sounds too good to be true to me. RM1.2bil just for 70% stake in MAAB. This could mean that MAA's 100% equity stake in MAAB could be worth RM1.7bil or RM5.58 per share!!! This price sounds even more puzzling when the price excludes its Takaful business, unit trust business and a host of other subsidiaries and associates (Mithril, Maybach and other international insurance businesses).

Expectantly, MAA came up with a statement to deny the report, a usual case of M&A denials which were highlighted again and again by Moolah. I'm very curious as well about the authenticity and credibility of the authors of these reports. Maybe the financial regulators should just look into the stakes these authors have in the shares they feature. Some people must be making big bucks out of these reports.

Anyway, MAA did confirm that they are talking with Zurich about the sale of MAAB. But the question is how much? For me, I wouldn't want to fork out RM1.2bil to acquire a business that hardly generates any decent earnings (Volatile earnings and very low margins, P/BV of >>4x, PE can't even be used). Last year, MAA even talked with AmG to sell its MAAB's general insurance business for RM180mil but even at that price the deal didn't go through, what's more with this incredulous RM1.2bil for just 70% stake in MAAB? Normally, takeover price is expected to be about 1.5x-2.0x P/BV for less quality insurance companies (Jerneh sale was at P/BV of about 2.1x (Not 1.2x as written earlier). Attaching P/BV of 1.5x to MAA's net asset/share of RM0.94 should draw the share price closer to RM1.41, provided that this sale is highly possible.

RM1.2 bil for 70% in MAAB? Nah..RM200 mil looks more like it.

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