Summary: DBS Group Holdings is acquiring a 67.4% stake in Bank Danamon for S$6.2b. This is priced at a 52.2% premium over Danamon’s closing price on 30 March 2012 or valuing it at 2.6x book. The transaction will be funded by the issuance of 439m new DBS shares at S$14.07 per share to Temasek, increasing DBS’s issued shares by 18.7% to 2,789m. There is also going to be a mandatory tender offer (MTO) for the rest of the Danamon shares, and assuming full acceptance, this will amount to an additional IDR21.2T (S$2.9b). This deal is expected to be EPS and ROE accretive by 2015. Integration with PT Bank DBS Indonesia will make it the 5th largest bank in the country. Over the longer run, this is a strategic move to deepen its market presence in Indonesia, which is still an Asian growth engine. However, for the near term, the acquisition premium and the potential dilution could act as dampeners as execution risks add to uncertainty. We are retaining our estimates, BUY rating and fair value estimate of S$15.40 for now.
Valuing Danamon at S$9.1b
DBS Group Holdings is taking over Temasek Holdings’ entire stake (or 67.37%) in PT Bank Danamon Indonesia Tbk (Danamon) for a total consideration of IDR45.2T (or S$6.2b). At IDR7,000 per share, this is priced at a premium of 52.2% above Danamon’s closing price on 30 March 2012 or valuing the group at 2.6x book value. Danamon has about 3,000 branches with about 6m customers. The transaction will be funded by the issuance of 439m new DBS shares at S$14.07 per share to Temasek, increasing DBS’s issued shares by 18.7% to 2,789m. As a result of this, Temasek’s stake in DBS will rise from 29.5% to 40.4%. There is also going to be a mandatory tender offer (MTO) for the rest of the Danamon shares, and assuming full acceptance, this will amount to an additional IDR21.2T (S$2.9b).
Accretive by 2015; new equity of S$6.2b vs. goodwill of S$5.5b
This deal is expected to be EPS and ROE accretive by 2015. Completion is slated for 2H12, integration will commence in 2013 and synergies are expected from 2014 once all the approvals have been secured. Based on 31 Dec 2011 numbers, the pro-forma NAV is S$12.27 (versus actual of S$11.99), EPS is S$1.21 (S$1.30) and total CAR is 14.8% (15.8%).
Becoming the 5th largest bank in Indonesia
This acquisition will strengthen its presence in the still robust Indonesian economy, and with a planned merger with PT Bank DBS Indonesia (subject to regulatory approvals), this will make it the 5th largest bank in Indonesia. Management intends to grow Danamon’s consumer as well as corporate businesses.
Strategic for the long term; but could see near term selling pressure
Over the longer run, this is a strategic move to deepen its market presence in Indonesia, which has been one of the key growth economies in the region with its diverse and growing industries. However, for the near term, the acquisition premium and the potential dilution could act as dampeners as execution risks add to uncertainty. We are retaining our estimates, BUY rating and fair value estimate (S$15.40).
DBS Group Holdings is taking over Temasek Holdings’ entire stake (or 67.37%) in PT Bank Danamon Indonesia Tbk (Danamon) for a total consideration of IDR45.2T (or S$6.2b). At IDR7,000 per share, this is priced at a premium of 52.2% above Danamon’s closing price on 30 March 2012 or valuing the group at 2.6x book value. Danamon has about 3,000 branches with about 6m customers. The transaction will be funded by the issuance of 439m new DBS shares at S$14.07 per share to Temasek, increasing DBS’s issued shares by 18.7% to 2,789m. As a result of this, Temasek’s stake in DBS will rise from 29.5% to 40.4%. There is also going to be a mandatory tender offer (MTO) for the rest of the Danamon shares, and assuming full acceptance, this will amount to an additional IDR21.2T (S$2.9b).
Accretive by 2015; new equity of S$6.2b vs. goodwill of S$5.5b
This deal is expected to be EPS and ROE accretive by 2015. Completion is slated for 2H12, integration will commence in 2013 and synergies are expected from 2014 once all the approvals have been secured. Based on 31 Dec 2011 numbers, the pro-forma NAV is S$12.27 (versus actual of S$11.99), EPS is S$1.21 (S$1.30) and total CAR is 14.8% (15.8%).
Becoming the 5th largest bank in Indonesia
This acquisition will strengthen its presence in the still robust Indonesian economy, and with a planned merger with PT Bank DBS Indonesia (subject to regulatory approvals), this will make it the 5th largest bank in Indonesia. Management intends to grow Danamon’s consumer as well as corporate businesses.
Strategic for the long term; but could see near term selling pressure
Over the longer run, this is a strategic move to deepen its market presence in Indonesia, which has been one of the key growth economies in the region with its diverse and growing industries. However, for the near term, the acquisition premium and the potential dilution could act as dampeners as execution risks add to uncertainty. We are retaining our estimates, BUY rating and fair value estimate (S$15.40).
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