DBS Group Holdings Ltd. said its it’s paying “fair value” for its $7.2 billion bid for PT Bank Danamon Indonesia even as the biggest takeover by a Southeast Asian lender dilutes earnings for the first two years.
The Singapore bank’s earnings per share will rebound from the third year of the acquisition, Chief Executive Officer Piyush Gupta said when questioned by shareholders on the merits of the deal at a shareholders’ meeting in Singapore today.
DBS is paying more than the median book value for banking deals over $1 billion as he seeks to diversify away from Singapore to an economy that’s three times the size of its home market. Indonesia’s gross domestic product expanded 6.46 percent last year, the most since the before the Asian financial turmoil that started in 1997.
“The price to book for Indonesia must reflect the reality,” Gupta said. “It’s a high growth, high return market. You have to pay the price that is relevant to that country to access the opportunities in the country.”
The stock has fallen 3.4 percent this month, compared with the 0.8 percent gain in the Bloomberg Asia Pacific Banks Index, which tracks 56 lenders in the region including DBS. The lender climbed 0.5 percent to S$13.70 at the close in Singapore.
DBS will buy 67 percent of Danamon for about $4.9 billion in shares from Temasek Holdings Pte, Singapore’s state-owned investment company that’s also its biggest stakeholder. It also made a cash offer for the remaining stock at a 52 percent premium from the previous closing price. Temasek will increase its stake in DBS to 40.4 percent from 29.5 percent.
At least five shareholders at the meeting today raised concerns their holdings will be diluted with the new shares for Temasek. They asked Gupta and the board why they weren’t given the option of a rights offer.
“It is true that you will earn less on an earnings per share basis for the next one or two years,” Gupta said. “By the third year, we are fairly confident that the incremental profit we’ll make from this acquisition will actually increase the earnings per share which the minority shareholders will get.”
DBS expects to hold a meeting with investors in June for the purchase of Temasek’s Danamon stake if it secures the regulatory approvals. The remaining shares will be bought after the purchase of Temasek’s holdings is completed.
“Banks like DBS, we’ve got a long journey ahead,” DBS Chairman Peter Seah said at the shareholders’ meeting. “Today, many global banks, particularly the Europeans, are weak. They will not stay so in the years to come. We have this opportunity.”
Bank Indonesia’s Deputy Governor Halim Alamsyah on April 11 said the central bank will seek talks on reciprocity with Singapore as a condition for approval of DBS’s offer and sent a letter to the Monetary Authority of Singapore on the issue.
Acquiring the Jakarta-based bank will help DBS expand through 3,000 Danamon branches.