By Kim Jae-won
Australia and New Zealand Banking Group (ANZ) is trying to measure up the Korea Exchange Bank (KEB) to see whether it is worthy to take over from Lone Star Funds but, by many indications, it may take more than another month before making a final decision.
In the end, it is likely to boil down to the price. There is at least 2 trillion won in difference between the price Lone Star is asking for and that which ANZ is expected to offer. ANZ sees itself in a better position because MBK, a private equity fund, dropped out of the race, according to a source knowledgeable about the process. It leaves the decision up to John Grayken.
ANZ has been conducting due diligence on KEB since Aug. 30.
A group of delegates numbering more than 10 from the third-largest Australian lender has been examining legal and accounting documents on KEB. JPMorgan and Goldman Sachs are helping them as advisors, while Lone Star selected Credit Suisse as its mediator.
A source said ANZ delegates are in Seoul.
“ANZ delegates are staying at the Chosun Hotel,” an industry source said.
“It is true that ANZ is serious in taking over KEB,” the source added.
The Westin Chosun Hotel did not confirm whether there have been guests from ANZ recently, but said one guest working for the lender is booked to stay at the hotel soon.
“One additional customer from ANZ Bank has made reservations to stay here, but I cannot speak further on that because it violates our code of conduct,” an employee from the hotel said.
JPMorgan’s Seoul office did not elaborate on the progress of the due diligence and said that it is too early to comment on the deal.
“We cannot say anything on ANZ’s due diligence on KEB at this time. We can only say that it may take some more time to know where the deal’s destination is,” a director from JPMorgan said.
Analysts echo JPMorgan’s view, saying there are so many uncertainties ahead of any big M&A deal between ANZ and the Texas-based equity firm.
“M&As are not as easy as some people think,” Jeon Hyo-chan, a senior analyst from Samsung Economic Research Institute, specialized on banking issues, said.
“Many complicated factors stand in the way of the deal, including the stance of the KEB union.”
Jeon mentioned HSBC as an example of how the deal has been difficult to strike. “HSBC came close to a deal with Lone Star for a KEB sale, but it didn’t materialize.”
The London-based global banking giant dropped its $6.3 billion offer to buy a 51 percent stake in KEB from Lone Star, citing market conditions two years ago.
It is interesting to note that ANZ Chief Executive Mike Smith was head of HSBC’s Seoul office at the time. Analysts said Smith’s experience and knowledge of the Korean market is one of the key factors for ANZ’s interest in the deal.
KEB has a 45 percent market share of Korean trade finance and there is little sign of any bidding tension, with wire reports quoting an unnamed source saying ANZ’s initial offer was about 3 trillion won ($2.6 bil). Lone Star suggested a price of 5 trillion won.
ANZ’s interest in KEB is connected to the lender’s aggressive strategy in the Asian region. ANZ said last November it would pour a further $400 million into China, as it rolled out its expansion plans.
The ambitious strategy calls for the establishment of more than 20 branches by 2012. ANZ also holds 20 percent of Shanghai Rural Commercial Bank and the Bank of Tianjin. The bank’s objective is to lift regional profits to account for 20 percent of the group’s earnings by 2012.