Kookmin Bank, South Korea's biggest lender, agreed to pay as much as 7 trillion won (US$7.2 billion) for a controlling stake in Korea Exchange Bank and secure its dominance in Asia's third-largest economy.
Kookmin chief executive Kang Chung-won said yesterday the bank will pay Lone Star Funds 15,400 won per share for a 64.6 percent stake, giving the Dallas-based buyout fund a gain of more than US$4 billion on a two and half years investment.
That's 20 percent more than the market price before Kookmin made a bid.
The Seoul-based bank plans to buy a 6.3 percent stake from another shareholder, people familiar with the sale said.
The nation's biggest takeover increases Kookmin's assets to US$280 billion, ranking it among Asia's top 10 banks, as Kang expands to meet increased competition. Kookmin is paying 1.76 times book value, mirroring the amount paid by Citigroup Inc and Standard Chartered Plc for smaller South Korean banks.
"The price doesn't look expensive for Kookmin, considering it will catch up in businesses where it has lagged behind," said Kim Hee-joon, who has Kookmin shares as one of main stocks in the 780 billion won of equity funds he manages at Chohung Investment Trust Management Co in Seoul.
"Kookmin will have few hurdles raising the funds," he said.
Kookmin can invest as much as 4 trillion won of its own capital buying Korea Exchange.
Kang said the lender will seek funds from outside investors to complete the acquisition.
"We have plenty of funds ready for the takeover," Kang said at a briefing in Seoul. "We can make up the shortfall by inviting investors abroad and at home."
Kookmin beat Hana Financial Group Inc and Singapore's DBS Group Holdings Ltd for the right to purchase Korea Exchange.
The acquisition will give Kookmin Korea's leading trade-finance operation as exports drive growth in the nation.
Korea Exchange will operate independently for at least one year after the takeover, Korea Exchange chief executive officer Richard Wacker told employees yesterday.
There will be no lay-offs at either lender after the purchase, Kang said.
Kookmin, which didn't adjust its original offer, offered to acquire all shares held by Lone Star Funds, Commerzbank AG and Export Import Bank of Korea, the people said. State-run Export Import has yet to decide how many shares it will sell, they said.
The acquisition is the first by Kang, 55, who took the top Kookman job in November 2004. Kang, a former country head of Deutsche Bank AG for South Korea, was helped in his expansion plans earlier this month when South Korean regulators doubled the ceiling on capital that Kookmin can use to fund the bid.
Kang said on Feb. 8 Kookmin needs to grow through takeovers as competition intensifies in South Korea.
Kookmin, which means "citizen" in Korean, will conduct due diligence on Korea Exchange's assets before making a final decision on how much to pay. The takeover will also need approval from competition and banking regulators in South Korea.
Park Dae-dong, director of the regulator's Financial Supervisory Policy Bureau, told reporters on Tuesday that Kookmin's possible acquisition is unlikely to breach antitrust rules, which restrict one company from taking more than 50 percent of an industry. Kookmin has 1,098 branches.
Kookmin will also need to win support from Korea Exchange's labor union.