DBS Group Holdings, Southeast Asia's biggest bank, has agreed to pay $7.24bn (£4.53bn) for Indonesia's Bank Danamon, offering a hefty 52 per cent premium and raising questions among investors over whether it has overpaid.
The deal, Asia's fourth-largest banking takeover, would make Singapore-based DBS the fifth largest lender in Indonesia, one of the region's hottest markets where bank penetration is relatively low and annual loan growth is running at 20 per cent.
"What this deal does for us is changing DBS from being 11 per cent in high-growth markets to 33 percent exposure to high-growth markets," Chief Executive Piyush Gupta told a briefing in Jakarta on Monday, noting that DBS was perceived as a low-margin, mature-market bank.
But the price - S$6.2bn ($4.93bn) in shares and the rest in cash - surprised some investors. DBS is also buying most of Danamon from Singapore state investor Temasek Holdings , also a major shareholder in DBS.
"DBS has to explain and illustrate the synergistic value it will gain for paying such a premium," said Roger Tan, CEO of SIAS Research, the research arm of the Securities Investors Association of Singapore.
"Though this step will take DBS one more step further in building a regional bank, they will have to show that their strategy is adding value to shareholders."
Though the offer, worth 7,000 rupiah ($0.77) per Danamon share, looked steep on a premium basis, it looked less generous using another valuation yardstick: at 2.6 times book value, the deal was below some other big banking takeovers in Indonesia.
DBS also signalled on Monday it wanted to expand as well in Malaysia, saying it had received approval to begin talks to buy an effective 14 percent stake in Alliance Financial Group (ALFG.KL) - again from Temasek.
The Alliance stake is worth about $270 million.
City A.M. Reporter