Sunday, April 1, 2012

DBS to buy Bank Danamon

This is the big announcement today. As I hold DBS shares, of course I am interested in the details of the deal. From what I gathered, two thirds of the deal will be financed by issuance of new shares and one thirds through internal cash and senior debt issuance. I have serious reservations about the price of the deal as I think Temasek may be the main beneficiary at the expense of other shareholders. The proposed purchase price at a book value of 2.62 is too high although lower than the Dao Heng's 3.33 (which was evidently overpriced). However, since the major portion of the deal is financed in stock at a share price of $14.07, it may provide some support to the share price at around $14.

DBS, controlled by Singapore’s state-run Temasek Holdings Pte , 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.
DBS will issue 439 million new shares at S$14.07 apiece to buy the stake from Temasek. 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 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.

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.

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