PETALING JAYA: The RHB banking group and the OSK group are close to completing their merger, which will largely feature the exchange of shares in a deal that could price OSK’s investment banking arm at around 2.2 times book value, corporate executives close to the transaction said.

“The pricing looked at is still between 1.9 times and 2.2 times book value of OSK Investment Bank,” said a financial executive close to the situation.

The key challenge for the merged entity will be the melding of two very different corporate cultures, said the executives.

“OSK is very much a personality driven company while RHB is majority owned by an institution. The challenge for RBH is to make sure that the bank doesn’t suppress the initiative that comes from the OSK side,” said one financial executive who has an advisory role in the merger which could be announced as early as next week.

Financial executives said that both RHB and OSK are keen to have an external person lead the merged entity and several potential candidates have been shortlisted.

Filings with Bursa Malaysia late last week said RHB and OSK had obtained the Finance Ministry’s approval to merge RHB’s banking group with OSK’s investment bank.

“Further details on the possible merger will be announced upon the execution of a conditional share purchase agreement between OSK and RHB,” noted both RHB and OSK in separate filings with Bursa Malaysia on April 27.

The merger, once completed, will give birth to one of the largest investment banking groups in the country with a regional reach. Some analysts view the acquisition of OSK investment bank as dilutive in the short term, but the trade off would be the opportunity for RHB to speed up its investment banking expansion regionally.

AmResearch noted that RHB will now be able to leverage on OSK’s nascent regional investment banking operations, compared with a slower internal expansion rate.

“Secondly, RHB Capital Bhd (the listed holding company of the RHB group) will also institutionalise OSK investment bank’s shareholder profile, which is positive in attracting bigger corporate mandates. Thirdly, RHBCap’s share of traded volume in the local market will climb to the top position (given that RHBCap’s share of the traded volume in the local market is circa 9% to 10% while OSK’s is circa 6%), with a likely combined market share of 15%. This will be above CIMB’s which is around 10%,” added the local research house in a note on April 30.

At end-September last year, RHB announced that it had written to Bank Negara Malaysia for approval to commence negotiations with OSK Investment Bank on a possible merger of businesses. The central bank gave its approval on Oct 13 and the parties had three months from then to negotiate.

Now that the acquisition of OSK is on track, industry observers believe another possible M&A could be on the cards for the RHB group, involving Malaysia Building Society Bhd. Speculation on this has been ongoing since last year, given that both groups share a common major shareholding in the Employees Provident Fund (EPF).

EPF had a 65.5% stake in MBSB as at Feb 8, 2012 and 44.99% in RHB as at April 13, 2012.

This article appeared in The Edge Financial Daily, May 3, 2012.