Shinhan favorable to MBK's Prudential takeover
The headquarters of Prudential Life Insurance Company of Korea in Seoul; and MBK Partners Chairman Kim Byung-ju / Korea Times file
By Park Jae-hyuk
MBK Partners' recent move to acquire Prudential Life Insurance Company of Korea is unlikely be undone by Shinhan Financial Group which previously signed a contract with the private equity firm (PEF) agreeing to a “prohibition of competitive transactions,” according to industry sources, Monday.
Sources said the financial group has been favorable to the PEF's takeover of the life insurer, because Shinhan wants its rival KB Financial Group to lose in the Prudential bidding.
Shinhan and MBK signed the contract regarding “prohibition of competitive transactions” in September 2018, when they signed a stock purchase agreement on Orange Life Insurance, formerly ING Life Insurance.
According to the contract, the PEF cannot become active in the insurance business until September 2020.
Taking this into account, market observers initially expected MBK would face difficulty in its bid to take control of the U.S. insurance giant's Korean unit.
This expectation led to a rumor that MBK sent a letter to Shinhan to ask whether its bidding for Prudential was in violation of the terms of their contract.
MBK declined to comment on this rumor, while Shinhan said it had not received any letter as of Monday morning.
Some observers said MBK would try to prolong negotiations regarding an acquisition of Prudential, so that the deal can be closed after September this year.
According to sources, however, MBK may not have to do any such thing as Shinhan appears to believe in the saying, “The enemy of my enemy is my friend.”
“Shinhan wants the PEFs to take over Prudential, thus beating out its biggest rival, KB Financial Group,” a banking industry source said on condition of anonymity. “The prohibition of competitive transactions will not prevent MBK from acquiring Prudential.”
KB has been regarded as the strongest candidate to take over Prudential's Korean unit, among potential buyers that are known to have participated in preliminary bidding.
It is seeking to recoup its status as the nation's leading banking group from Shinhan through the acquisition.
KB lost the title in the fourth quarter of 2018 as Shinhan's net income rose significantly following the Orange Life takeover.
Against this backdrop, Shinhan has been rooting for PEFs that have participated in the bidding for Prudential, so as to stunt prevent its rival's growth.
Given that MBK has been mentioned as the second-strongest candidate, Shinhan will likely support the buyout fund wholeheartedly.
MBK has an advantage over other bidders as it has managed a life insurer successfully in the past.
The PEF, which acquired a 100 percent stake in Orange Life for 1.8 trillion won ($1.5 billion) in 2013, earned 1.7 trillion won in dividends through an initial public offering and sold its remaining 59.15 percent stake in the life insurer to Shinhan for 2.2 trillion won in 2018.
This means MBK earned over 2 trillion won within five years of acquiring Orange Life.
In addition, MBK is seeking to raise $6.5 billion in the first half of the year for its fifth buyout fund, MBK Partners Fund V, and has already raised $4.2 billion for the Northeast Asia-focused fund.
The price of Prudential Life Insurance Company of Korea is estimated at around 2 trillion won.
“The Prudential takeover is a big deal and the life insurer will be sold to a financial group eventually, so there is no reason for PEFs to hesitate about the lucrative deal,” a private equity industry source said on condition of anonymity.