DBS to acquire Temasek stake in Bank Danamon for $7.2 billion

Written by Bloomberg | Updated: Apr 3 2012, 07:41am hrs
DBS Group Holdings (DBS) offered to buy PT Bank Danamon Indonesia 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 Singapores state-run Temasek Holdings, said it will pay its parent company 45.2 trillion rupiah ($4.9 billion) in new shares for its 67% 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% from 29.5%, the lender said.

Southeast Asias biggest bank plans to tap Bank Danamons 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 regions largest economy.

Theyre probably paying a premium for growth, said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages almost $100 billion. Theres a lot of growth potential in Indonesia. Market valuations there arent 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. DBS shares, suspended from trading for the announcement, last traded at S$14.18 on March 30. Bank Danamon shares were also untraded on Monday.

DBS will offer to buy the remaining shares at 7,000 rupiah each, a 52% premium from Danamons closing price of 4,600 rupiah on March 30. That amounts to 2.62 times Danamons 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 Malaysias central bank to start talks to buy Temaseks 14.2% stake in Kuala Lumpur-based Alliance Financial Group. The negotiations arent likely to trigger a takeover offer, Alliance Financial said in a statement on Monday. Gupta said a stake of that size in the Malaysian bank would help provide a foothold to build out something in the future.

Alliance Financial shares rose 2.3% to 3.98 ringgit as of 1:29 pm in Kuala Lumpur, outpacing a 0.1% gain in the benchmark FTSE Bursa Malaysia KLCI Index.

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 DBSs biggest purchase, eclipsing the $5.4 billion it paid for Hong Kongs Dao Heng Bank Group in 2001. In that deal it paid 3.33 times book value, according to the Bloomberg data.

The price theyre paying doesnt look excessively rich in the Indonesian context, said Sam Hilton, an analyst at Keefe, Bruyette & Woods.

Gupta, 52, said the deal will help DBS branch out from Singapore and Hong Kong. He said he doesnt expect job losses from the transaction.

Danamons branch network, Indonesias second largest, serves 6 million customers. The Indonesian economy grew 6.46% last year, the most since before the Asian crisis. Its forecast to grow 6.5% in 2012.