Bank Danamon, Acquisition in the offing, CLSA

Fullerton Financial Holdings, a unit of Temasek, has entered into a share
agreement with DBS Group Holdings to sell its subsidiary Asia Financial’s
stake in BDMN to DBS. In addition, DBS will offer cash for the minorities,
at Rp7,000/share which is attractive in our view. We therefore prefer to
sell BDMN at a price close to Rp7,000/share and will review our price
target and recommendation accordingly after BDMN’s trading reopens.


DBS Group to take majority control over BDMN
DBS Group Holdings will acquire all BDMN’s stake held by Asia Financial
Indonesia (subsidiary of Fullerton Financial Holdings) at US$4.9bn or
equivalent to Rp45.2tn. In addition to that, DBS Group also offers to buy the
remaining shares at Rp7,000/share, translating into 2.6x PBV, a 52%
premium over closing price of Rp4,600/share.

The cash offer is attractive
We view the cash offer by DBS Group to be attractive due to 2 reasons:
(1) The regulatory risks are still overshadowing Indonesian banks, with
the new minimum down payment ruling likely to hit BDMN hardest due to
its high exposure to auto financing; and (2) BDMN has a weak funding
franchise with a LDR of almost 100% (bank only) as of Dec-11, or more
than 100% (consolidated).

A merger with DBS Indonesia to occur
DBS Group already has a presence in Indonesia through DBS Indonesia.
Therefore, post completion of this transaction, BDMN will likely be merged
with DBS Indonesia to comply with the single presence policy requirement. As
of Dec-11, DBS Indonesia had total assets of Rp33tn (vs BDMN’s assets of
Rp142tn).

Sell at a price close to Rp7,000/share
This transaction is still subject to approval, among others, from DBS
shareholders and regulators, including Bank Indonesia. While we think that
the synergies may take some time to emerge and are still difficult to estimate
(not to mention it also takes time for the transaction to finalize due to the
need for shareholders’ approval as well as regulatory approval), we
recommend investors sell at a price close to Rp7,000/share. We will review
our price target and recommendation once trading reopens and the share
price adjusts to the takeover proposal.

Download file : Indonesia Danamon