SYDNEY (Reuters) – Australia and New Zealand Banking Group (ANZ.AX) is expected to decide by mid-October whether to bid for a majority stake in Korea Exchange Bank (004940.KS), worth about $4 billion at current prices, three sources said on Tuesday.
If successful, the KEB deal will represent ANZ’s biggest ever acquisition as Australia’s No. 4 bank steps up its effort to become an Asia-focussed regional bank, on the lines of HSBC Holdings (HSBA.L) and Standard Chartered (STAN.L).
ANZ is set to start inspecting the books of KEB, South Korea’s fifth-largest bank, in the next several days, said the sources, who asked not to be identified because they are not authorised to speak to the media.
Private equity firm Lone Star [LS.UL] owns 51 percent of the 57.3 percent stake on offer at KEB with the balance held by the Export Import Bank of Korea.
One source said ANZ would consider a bid around 1.3 to 1.4 times KEB’s book value, or around $5 billion.
That is above the bank’s current market valuation but at the lower end of some analysts’ estimates. Citigroup analysts said in a note to clients on Monday ANZ could pay up to A$6.5 billion ($5.8 billion).
“ANZ wants to play it conservative. A bid should be closer to the book value, not too high. But they need to run through the numbers first,” said the source with direct knowledge of the matter.
An ANZ spokesman declined to comment.
On Monday, ANZ moved a step closer to launching a bid for KEB after saying that it will conduct due diligence on KEB. ANZ first expressed interest in KEB in April and hired Goldman Sachs (GS.N) and JPMorgan (JPM.N) as its advisers.
ANZ is eyeing KEB to accelerate its Asia focus that blossomed in 2007 after Michael Smith, previously HSBC’s Asia head, took over as Chief Executive. KEB also offers ANZ an opportunity to put to good use the some $6 billion in surplus capital it has.
KEB is among the few meaningful opportunities available in Asia, where high price and stiff ownership regulations make bank acquisitions tough. ANZ wants to ring in a fifth of its profit from Asia by 2012 from 14 percent now.
Its plan to buy a controlling stake in Indonesia’s PT Bank Panin fell through in June on price differences. [ID:nSGE65L016]
KEB’s ties to small- and medium-sized companies, trade finance and foreign exchange businesses plus its reach through 353 branches fits well with ANZ’s strategy to target trade flows though Korea is a low return market, analysts say.
And with its surplus capital, funding the deal is going to be easy, they say.
Lone Star has been trying to sell KEB for four years at least. A $6.3 billion bid by HSBC (0005.HK) (HSBA.L) fell through in the wake of the global financial crisis. At that time ANZ’s Smith was one of the architects of the deal.
Lone Star also had an agreement with Kookmin Bank, a unit of KB Financial Group (105560.KS), to buy KEB in 2006.
But the deal was scuppered after South Korean prosecutors launched an investigation into whether KEB’s financial strength was deliberately understated when Lone Star acquired the bank in 2003.
In June 2006, a South Korean government audit cleared Lone Star of any wrongdoing.
The only other interested party so far is MBK Partners. But sources said last week it has failed to put together a group to bid for the stake. [ID:nSGE67902T]. ($1=1.114 Australian Dollar) (Reporting by Narayanan Somasundaram; Additional reporting by Denny Thomas in HONG KONG; Editing by Muralikumar Anantharaman)