Upon completion of the proposed acquisition, DBS will launch a mandatory tender offer (MTO) to acquire the remaining listed shares from the other shareholders of Danamon for a cash offer price of IDR7,000 per Danamon share. The price of IDR7,000 per Danamon share represents a premium of 56.3% over its one-month volume weighted average price (VWAP) per share of IDR4,480. Currently, DBS does not own any shares in Danamon.
Danamon is a leading full service commercial bank in Indonesia, with a nationwide presence of approximately 3,000 branch offices and outlets and approximately 6 million customers. It has a market leading presence in microfinance, auto lending and a growing business in the small and medium enterprises (SME) and retail segments.
Strategic Rationale
DBS’ strategic intent is to become a leading Asian bank, with a more diversified revenue mix across its key markets in the three key axes of growth, namely, Greater China, South Asia and Southeast Asia. The proposed acquisition of Danamon is in line with this strategy. In addition, it increases the revenue contribution from high growth markets with Indonesia becoming a top three revenue contributor to DBS, alongside Singapore and Hong Kong.
Indonesia’s banking sector is highly attractive for DBS given its demographics, strong macroeconomics and fast growing economy. It remains underserved and continues to benefit from a growing middle class, rapidly rising domestic consumption and increasing trade flows within the region. This offers significant market opportunities across banking products and customer segments, making Danamon’s universal banking platform well suited to tap into the Indonesian growth story.
It is envisaged that Danamon will be merged with PT Bank DBS Indonesia (DBS Indonesia), subject to receipt of requisite regulatory approvals. The combined banking platform will bolster DBS’ existing presence in Indonesia, propelling it to a top five player in the country. It will also further enhance the regional network and connectivity that DBS can provide to its customers.
DBS and Danamon are complementary in many ways, and a combined DBS and Danamon banking platform will be stronger for the following reasons:
Piyush Gupta, CEO of DBS, said: “Over the past two years, DBS has strengthened its franchise across Asia and we are now well-positioned to embark on the next phase of growth. Danamon is a highly attractive franchise with an established platform, market leading positions and a very capable management team. This landmark acquisition enables us to generate greater value for customers, employees and shareholders alike."
He added: "Indonesia is an exciting Asian market and we believe that we will be able to contribute towards the growth of the Indonesian banking sector, especially in areas such as infrastructure financing, project financing, trade finance and syariah banking. With Danamon, we will be able to significantly diversify our revenue mix and further consolidate our position as the Asian Bank of Choice.”
As a result of this transaction, Danamon will become part of a regulated regional bank. This transaction contributes to banking sector consolidation in Indonesia, and will also contribute to the industry in the following ways:
Peter Seah, Chairman of DBS, said: “We have been operating in Indonesia since 1989 and know the country and the people well. This is a significant milestone for DBS and demonstrates our confidence in Indonesia and long-term commitment to this market. Indonesia’s economic resilience, reflected by its recent ratings upgrade to investment grade, creates a positive operating environment for us. The DBS Board is also impressed with how Danamon has grown to become one of the top banks in Indonesia. By leveraging on the collective strengths of both entities, DBS will be able to take Danamon to the next level.”
Transaction Terms and Funding
Assuming full acceptance of the MTO, the proposed acquisition value is approximately IDR66.4 trillion (SGD9.1 billion), representing 2.6x of Danamon’s audited consolidated book value as at 31 December 2011. Of the total acquisition value, IDR45.2 trillion (approximately SGD6.2 billion) will be paid to FFH in the form of new shares and the remainder to the other shareholders in cash via the MTO.
The cash consideration of IDR21.2 trillion (approximately SGD2.9 billion) is expected to be funded by a combination of internal cash resources and future senior debt issuances.
Proforma Financial Impact
On an unaudited proforma basis assuming full acceptance of the MTO (based on reported financial statements as of 31 December 2011), the acquisition is expected to reduce DBS’ core tier 1[3] ratio from 11.0% to 10.3%, tier 1 ratio from 12.9% to 12.1% and total capital adequacy ratio from 15.8% to 14.8%. DBS’ proforma capital ratios remain strong and are comfortably above regulatory requirements.
The proposed acquisition is expected to be accretive to DBS’ earnings per share and return on equity by 2015[4]. Integration will commence in 2013 and synergies are expected to be progressively phased in from 2014 and fully realised by 2015.
Approvals and Timing
The proposed transaction is subject to receipt of all necessary regulatory approvals, which includes Singapore and Indonesia, and shareholders’ approval in Singapore. The proposed transaction is expected to be completed in the second half of this year.
A tender offer for the remaining shares will be launched upon closing of the acquisition of shares of AFI which in turn holds shares in Danamon.
Malaysia
DBS Bank Ltd. (DBS Bank) has separately received approval from Bank Negara Malaysia to commence discussions with Duxton Investments Pte. Ltd., a wholly-owned subsidiary of FFH, to acquire its 49% interest in Vertical Theme Sdn. Bhd. which owns approximately 29% equity interest in Alliance Financial Group Berhad (Alliance) in Malaysia. The proposed transaction would give DBS Bank an effective economic stake of approximately 14% in Alliance, and DBS Bank would not be required to make any tender offer to the remaining shareholders of Alliance. Further details will be announced upon agreement on the transaction terms and receipt of requisite regulatory approvals.
Advisers
DBS has appointed Credit Suisse and Morgan Stanley as its joint financial advisers on the proposed acquisitions of Danamon and Alliance, WongPartnership LLP and Hadiputranto, Hadinoto & Partners as its legal advisers on the proposed acquisition of Danamon, and PT. Danareksa Sekuritas (Persero) as its domestic adviser on the proposed acquisition of Danamon.
The independent directors of DBS will be appointing ING Bank N.V. as the Independent Financial Adviser to advise on the proposed acquisition of AFI.
Forward-Looking Statements
All statements other than statements of historical facts included in this Announcement are or may be forward-looking statements. Forward-looking statements include but are not limited to those using words such as "seek", "expect", "anticipate", "estimate", "believe", "intend", "project", "plan", "strategy", "forecast" and similar expressions or future or conditional verbs such as "will", "would", "should", "could", "may" and "might". These statements reflect DBS' current expectations, beliefs, hopes, intentions or strategies regarding the future and assumptions in light of currently available information. Such forward-looking statements are not guarantees of future performance or events and involve known and unknown risks and uncertainties. Accordingly, actual results may differ materially from those described in such forward-looking statements. Shareholders and investors should not place undue reliance on such forward-looking statements, and DBS does not undertake any obligation to update publicly or revise any forward-looking statements.
[1] Based on the agreed exchange rate of S$1:IDR7,318
[2] The issue price is based on the 2-week VWAP of DBS’ shares for the period ending on 28 March 2012 of S$14.35, being the latest practicable date prior to the submission of DBS’ expression of interest to FFH, adjusted for DBS’ final one-tier tax exempt dividend of S$0.28 per share for FY2011 announced on 9 February 2012.
[3] Assumes full deductions instead of phase-in deductions. In June 2011, the MAS announced the Basel III requirements for Singapore-incorporated banks, which included a progressive phase-in for deductions against common equity starting from an initial 0% in 2013 and reaching 100% by 2018.
[4] This statement should not be interpreted to mean that earnings per DBS share for shareholders of DBS will necessarily match or exceed the historical or published earnings per DBS share.
[End]
About DBSDBS - Living, Breathing Asia
DBS is a leading financial services group in Asia, with over 200 branches across 15 markets. Headquartered and listed in Singapore, DBS is a market leader in Singapore with over four million customers and also has a growing presence in the three key Asian axes of growth, namely, Greater China, Southeast Asia and South Asia. The bank's strong capital position, as well as "AA-" and "Aa1" credit ratings that are among the highest in the Asia-Pacific region, earned it Global Finance's "Safest Bank in Asia" accolade for four consecutive years, from 2009 to 2012. In 2012, DBS was named Asia's Best Bank by The Banker, a member of the Financial Times group, and Derivatives House of the Year, Asia ex-Japan, by Asia Risk.
DBS provides the full range of services in consumer, SME and corporate banking activities across Asia and the Middle East. As a bank born and bred in Asia, DBS also understands the intricacies of doing business in the region’s most dynamic markets. This market insight and regional connectivity have helped to drive the bank’s growth as it sets out to be the Asian bank of choice. The bank believes that building lasting relationships with its customers is an integral part of banking the Asian way.
With its extensive network of operations in Asia and emphasis on engaging and empowering its staff, DBS presents exciting career opportunities. The bank acknowledges the passion, commitment and can-do spirit in all of our 18,000 staff, representing over 30 nationalities. For more information, please visit www.dbs.com.
