It is vulnerable to be takeover target

March 30 | Updated: Mar 31 2006, 05:30am hrs
DBS Group Holdings Ltd, which last week failed in its bid to buy a stake in Korea Exchange Bank, is vulnerable to becoming a takeover target itself should its share price continue to decline, chairman Koh Boon Hwee said.

If our stock continue to underperform, we would be vulnerable, Koh said at a meeting with shareholders in Singapore on Thursday. Koh, who was appointed chairman of Singapores largest bank this year, was responding to shareholders concerns that the lenders shares have not performed as well as its Singapore rivals. DBS shares have fallen 1.8% this year, compared with a 6.9% advance in United Overseas Bank Ltd.

Singapores largest bank has not made a major acquisition since it paid $5.4 billion, more than three times book, for Hong Kongs Dao Heng Bank in April 2001. DBS shares dropped 4.2% in the four days after the bank first said it was bidding for the Korean bank on March 13, partly because of concerns it may end up paying too much. The bank said it failed in its bid for the Korean lender last week.

Shares of DBS added 10 cents, or 0.6%, to S$16.20 close in Singapore. That is still lower than the S$16.60 price at which they closed before the banks April 2001 announcement to buy Dao Heng. DBS is priced about 1.5 times to book, according to Bloomberg data.

United Overseas Bank, Singapores second-largest lender is priced at about 1.8 times, while Oversea-Chinese is priced at 2.1 times. When a banks stock, the price to book, is below what other banks shares are trading, it is cheap relative to other banks, Frank Wong, chief operating officer, said after the banks annual shareholders meeting on Thursday. That means it will cost less money to acquire the bank.

Temasek Holdings Pte, Singapores state-owned investment company, this week said it will buy a 12% stake in Standard Chartered Plc. DBS is 28% owned by Temasek. With the Temasek stake in StanChart, now suddenly things change. Merrill Lynch & Co said in a report on Wednesday.