DBS Group Holdings Ltd. (DBS) offered to buy PT Bank Danamon Indonesia (BDMN) for about $7.2 billion, the biggest takeover by a Southeast Asian lender, to tap a market growing at the fastest pace since before the 1997 Asian crisis.
DBS, controlled by Singapore’s state-run Temasek Holdings Pte (TMSK), said it will pay its parent company 45.2 trillion rupiah ($4.9 billion) in new shares for its 67 percent stake and buy the remaining stock from other shareholders for 21.2 trillion rupiah in cash. Temasek will increase its stake in DBS to 40.4 percent from 29.5 percent, the lender said.
Southeast Asia’s biggest bank plans to tap Bank Danamon’s 3,000-branch network to expand in Indonesia, where rising investment and domestic spending is countering an export slowdown. Chief Executive Officer Piyush Gupta is paying more than the median book value for banking deals over $1 billion as he seeks to diversify away from Singapore and Hong Kong into the region’s largest economy.
“They’re probably paying a premium for growth,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors Ltd., which manages almost $100 billion. “There’s a lot of growth potential in Indonesia. Market valuations there aren’t that demanding.”
DBS will issue 439 million new shares at S$14.07 apiece to buy the stake from Temasek, the Singapore-based lender said in a statement to the stock exchange. DBS shares, suspended from trading for the announcement, last traded at S$14.18 on March 30. The bank asked that the trading halt be lifted tomorrow. Bank Danamon shares were also untraded today.
DBS will offer to buy the remaining shares at 7,000 rupiah each, a 52 percent premium from Danamon’s closing price of 4,600 rupiah on March 30. That amounts to 2.62 times Danamon’s book value, higher than the median of 2.2 for deals worth more than $1 billion in the global banking industry over the past five years, according to data compiled by Bloomberg.
The Singapore bank also obtained approval from Malaysia’s central bank to start talks to buy Temasek’s 14.2 percent stake in Kuala Lumpur-based Alliance Financial Group Bhd. (AFG) The negotiations aren’t likely to trigger a takeover offer, Alliance Financial said in a statement today.
Gupta said a stake of that size in the Malaysian bank would help provide a “foothold to build out something in the future.”
Southeast Asian banks are expanding with Malaysia’s CIMB Group Holdings Bhd. (CIMB) saying today it agreed to buy most of the Asia-Pacific cash equities and investment banking business of Royal Bank of Scotland Group Plc, Britain’s biggest state-owned lender. CIMB, Malaysia’s second-largest bank, will pay 88.4 million pounds ($142 million) to RBS and inject a further 85.5 million pounds into the business.
DBS said the acquisition of Bank Danamon would cost about 66.4 trillion rupiah if all Danamon shareholders accepted the offer, which it also valued at 2.6 times book value. DBS will pay the remaining shareholders in cash, funded by its own capital and debt, it said.
The transaction would be DBS’s biggest purchase, eclipsing the $5.4 billion it paid for Hong Kong’s Dao Heng Bank Group Ltd. in 2001. In that deal it paid 3.33 times book value, according to Bloomberg data.
“The price they’re paying doesn’t look excessively rich in the Indonesian context,” said Sam Hilton, a Hong Kong-based analyst at Keefe, Bruyette & Woods Inc.
Gupta, 52, said the deal will help DBS branch out from Singapore and Hong Kong. Speaking on a conference call today, he said he doesn’t expect job losses from the transaction.
“Indonesia is an exciting Asian market,” said Gupta, who joined DBS in 2009 after 27 years at Citigroup Inc. “We will be able to contribute towards the growth of the Indonesian banking sector, especially in areas such as infrastructure financing, project financing, trade finance and syariah banking.”
Danamon’s branch network, Indonesia’s second largest, serves 6 million customers. The Indonesian economy grew 6.46 percent last year, the most since before the Asian crisis. It’s forecast to grow 6.5 percent in 2012.
DBS said in a slide presentation today that its 2011 revenue from South and Southeast Asia would have increased to 27 percent from 7 percent with Danamon, while its reliance on Singapore would decline to 49 percent from 62 percent.
The deal will allow DBS “to expand in an important high- growth emerging market,” Jonathan Koh, an analyst at UOB Kay Hian in Singapore, wrote in a note. DBS could “add value by building up Bank Danamon’s corporate banking, investment banking and treasury businesses,” he said.
Temasek’s banking unit Fullerton Financial Holdings Pte, which holds the stake in Danamon, Indonesia’s sixth-biggest bank by assets, said in a March 30 statement it received an offer for its shares, without disclosing the bidder.
In June 2003, Temasek and Deutsche Bank AG (DBK), Germany’s biggest bank, through Asia Financial Indonesia, paid 3.08 trillion rupiah for a 51 percent stake in Danamon. Temasek now owns all of Asia Financial through Fullerton Financial.
Temasek (TMSK) managed S$193 billion ($154 billion) in the year ended March 2011, according to its website. Fullerton Financial said it appointed Bank of America Corp.’s unit Merrill Lynch and UBS AG as advisers for the offer. DBS said it named Credit Suisse Group AG and Morgan Stanley as its advisers on the proposed purchase of Danamon and Alliance. Temasek also said it obtained a waiver from having to make a takeover bid for DBS.
Asian investments made up 77 percent of Temasek’s underlying portfolio in 2011, the website showed. The percentage of financial services in Temasek’s portfolio rose to 36 percent from 35 percent as of March 2011, according to the company.
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