By Nam Hyun-woo
KB Financial Group’s decision in August to swap with Hyundai Securities is looking like a brilliant move, with analysts on Wednesday releasing a sound third quarter outlook on the bank holding company.
Han Jeong-tae, an analyst at Hana Financial Investment, expected the group’s net profit in the third quarter to reach 488.2 billion won ($445.64 million), continuing its “earnings surprise” in the first half of this year. During the first half, the group posted a 1.13 trillion won in net profit, up a whopping 19.1 percent year-on-year.
“KB Financial Group has the momentum whereby expansion in its non-banking businesses through mergers and acquisitions is raising the entire corporate value,” said Han. “Though its acquisitions of a non-life insurance firm and a savings bank did not account for more than 10 percent of its earnings, the group is making Hyundai Securities a 100 percent subsidiary through the stock swap allowing increases in non-banking earnings.”
The group on Aug. 2 held a board meeting and decided to swap stocks with Hyundai Securities and buy back the group’s own stocks worth 500 billion won. During the meeting, the board set the swap rate at 1:0.1907312, meaning one KB Financial Group stock is equivalent to approximately five Hyundai Securities stocks.
The decision soothed minor Hyundai Securities shareholders concerned that they might suffer losses in the merger process. According to the group, both KB and Hyundai Securities stock prices rose by 5 to 7 percent, respectively, after the board meeting.
The stock swap was also upheld by the Institutional Shareholder Service (ISS), a global corporate governance and responsible investment solutions provider.
In its report to institutional investors, ISS cited that Hyundai’s stock price has risen after the stock-swap decision, which is a positive market response. Hyundai’s stocks improved from 6,730 won on Aug. 2 to 7,210 won on Sept. 20, showing a 7.13 percent rise.
ISS also pointed out that appraisal rights of the price of 6,637 won is lower than the current value of Hyundai Securities stocks. Appraisal rights refer to the rights of the minor shareholders to have the fair market value paid to them when the corporation is undergoing a significant change which may cause the shareholders losses. As of 2 p.m., Wednesday, Hyundai Securities’ stocks were traded at 7,180 won. Unless there is a nosedive, exerting the rights does not guarantee higher returns for shareholders.
Hyundai Securities shareholders will hold a meeting on Oct. 4. At the meeting, they will vote whether to approve the board decision to swap stocks. As of June 30, Hyundai Securities’ major shareholders are KB Financial Group with a 29.62 percent stake and the National Pension Service with a 6.1 percent stake. The aggregated minor shareholders stake accounts for 55 percent.
Should the shareholders approve the stock swap, Hyundai Securities’ stocks will be delisted on Nov. 1. KB Financial Group will make Hyundai Securities a 100 percent subsidiary and merge its securities with KB Securities by dissolving the former. The merged firms will use the name of KB Securities and will begin operations on Jan. 1 next year.