Tay Partners

InsiderTAPS (November 2006)

Insider TAPS Issue 010 - Bank Negara Malaysia Relaxes Merger Rules

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The Central Bank of Malaysia (known as Bank Negara Malaysia) announced last week, in a move that could lead to a consolidation in the banking industry, that financial institutions are now allowed to negotiate potential mergers and acquisitions (M&As) with more than one party simultaneously.

Prior to the new ruling, financial institutions were only allowed to enter into sale talks with a single party at any one point of time, while discussion with another suitor can only start after earlier merger talks have lapsed.

Parties intending to enter into negotiation for the acquisition or disposal of an aggregate interest of 5% or more in shares of financial institutions licensed under the Banking and Financial Institutions Act 1989, Insurance Act 1996, Islamic Banking Act 1983, Takaful Act 1984 and Development Financial Institutions Act 2002 can submit their intention with more than one party simultaneously.

Prospective acquirers and/or sellers are required to obtain the Central Bank’s consent prior to entering into negotiation on the terms and conditions of the proposed acquisition or disposal of shares in licensed institutions. In accordance with the provisions of the relevant legislations, approval from the Minister of Finance through the Central Bank of Malaysia is required before any agreement or arrangement is signed or finalised.

This latest move is part of the Central Bank’s efforts to transition the banking industry into a more deregulated environment. In addition to quickening the pace of M&As, the liberalisation is also expected to boost the prices of the smaller financial institutions that are traditionally seen as likely M&A targets.

For more information, please visit www.bnm.gov.my.