If so, what can both banks expect from the takeover?
Reports came out in April about DBS' bid to takeover Indonesia's Bank Danamon. Will this be another successful acquisition for DBS? ABF sought the insights of industry analysts to find out.
Macquarie: Matthew Smith, Senior Analyst
While we think the deal will ultimately be approved, it is by no means certain. They could be in for a protracted period of negotiation and decision-making by the Indonesian authorities.
Although I consider this to be an expensive acquisition for DBS's minority shareholders, it clearly will allow DBS Group to diversify their earnings and revenue streams into the high-growth, high-margin Indonesian market. For Danamon's shareholders, it's a great deal, since they would be getting more than fair value in my opinion.
DBS's primary contribution to Danamon in the short run would be its ability to provide funding -- primarily US dollar funding -- which would enable Danamon to build up its corporate loan book and related services.
I don't think DBS with its strong corporate banking capability really brings anything to the table that would allow for greater returns at Adira Finance, which is a motorcycle finance company that makes up 40% of Danamon's loans.
Keefe, Bruyette & Woods: Sam Hilton, Analyst
Bank Indonesia has stated that they will not begin the process of looking at the transaction until they issue new rules on bank ownership, which they are targeting for May or June. They has also said they want an agreement with the MAS on reciprocity before looking at the deal. This will likely delay the approval process, perhaps beyond the 2H12 window the DBS CEO is targeting. Operationally, the deal has a lot to offer to both parties over the longer term. It plugs one of the biggest gaps in DBS’ pan-Asia growth strategy, and in particular adds another high-growth market to its existing China and India businesses. For Danamon, the deal offers the potential for reduced funding costs, as well as new capabilities in corporate banking, premium retail and treasury & markets.
Maybank Kim Eng: Desmod Ch'ng, Analyst
Management hopes to get MAS and shareholder approval over the next few months and Bank Indonesia’s (BI) approval sometime in 2H. However, BI’s governor said that the acquisition will not be approved until new ownership rules are in place in June and agreed with Singapore on reciprocity. While we believe the deal is still likely to go through, there are risks that the acquisition will drag on and DBS may not get the 80% stake that it wishes (after paring down), which could complicate management’s plans of synergising the operations of the two entities in the future.
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