CIMB Group Holdings (CIMB) announced that it has enteredinto a memorandum of understanding (MOU) for the proposed acquisition ofcertain parts of the cash equities, equity capital markets and corporatefinance businesses of the Royal Bank of Scotland (RBS) in Asia Pacific. The MoUprovides for the parties to negotiate exclusively with each other and tofinalise the scope and terms of the sale and purchase agreement. 

The proposed acquisition of selected segments of RBS'sbusiness has been widely reported. Thus, the announcement posed no majorsurprises. The press had reported in mid-February that the acquisition pricewill likely be US$50mil.  It was reportedthen that CIMB had has been confirmed to be a buyer of RBS's Australia equitybusiness, which currently employs 175 of 600 staff overall.   

RBS has been reported to be looking at exiting its cashequities, corporate broking, equity capital markets and merger and acquisition(M&A) businesses in Asia Pacific. It was reported that RBS operates in 11countries in Asia. RBS was reported to be ranked 24th in the league table thatranks banks according to revenue derived from advising on mergers andacquisitions, stock sales and bond underwriting, and syndicated loansthroughout the Asia Pacific region last year, according to data fromDealogic.  In 2010, it was in 20th place.

We believe CIMB will also likely be looking at other partsof RBS's businesses for sale, besides the Australian operations, given that RBSis reported to be selling these at a discount.   

We also view the potential acquisition as more than anacquisition of bankers, despite RBS's reportedly lower ranking in the leaguestable. While it can be argued that CIMB would be better off building its ownplatform in equities business in Asia Pacific, including Australia, we believethat, given a relatively digestible price tag, the potential RBS acquisitionwill provide CIMB with a platform that would be immediately up and running, ratherthan embarking on a slower organic expansion process.  

We also expects the deal to enhance CIMB's investmentbanking franchise. We are thus inclined to be positive on the deal, subject tothe final price tag. We maintain our BUY rating with CIMB with a fair value ofRM8.00/share.