RHBCap- the poker game has just started

The news that Abu Dhabi Commercial Bank (ADCB) is selling its 25 per cent stake in RHB Capital Bhd (RHBCap) to Aabar Investments PJSC, a sister company of ADCB at a price "close to RM11" each may throw a spanner in the works by Maybank & CIMB to acquire RHBCap. For more, go here.

Prior to this news, the market was expecting an offer price for RHBCap to be in the range between RM10.16 and RM10.60 a share (based on a price-to-book value of 2.1 times). Would Maybank & CIMB be keen to bid for RHBCap at this new price? The market is now concerned that Maybank & CIMB may not proceed with the proposed acquisition since the price is too high.

RHBCap dropped 19 sen to close at RM9.56 today. It may test its uptrend line support at RM9.47 and if this support is violated, it may test the gap at RM9.37. A breakdown of these two support levels would bring on more selling & further downside to the stock. However, these twin support levels could be a good entry to this stock if you believe that the sale of the RHBCap (or RHB & other units within the group) is still a possibility. Needless to say, RHBCap- like any other M&A play- is a high risk trade. The higher selling price could be viewed negatively as a hurdle or positively a higher return if the deal is consummated.

Chart: RHBCap's daily chart as at June 20, 2011 (Source: Quickcharts)