Monday, June 11, 2007

DBS ends talks to buy S Korea's KEB

News just out - DBS has decided not to buy S Korea's KEB.

SINGAPORE - Singapore's DBS Group Holdings, Southeast Asia's largest bank, said on Monday that it has ended talks with Lone Star about buying a stake in South Korean lender Korea Exchange Bank (KEB) .

The statement came after Korea's Yonhap news agency on Sunday quoted Lone Star chairman John Grayken as saying that the US investment firm had stopped talks with DBS.

Mr Grayken didn't say why the talks ended, but said that the Dallas-based fund would keep looking for a buyer for KEB, despite a legal battle over the 2003 purchase of the bank.

'We notified Lone Star that we would not be going forward due to the uncertainties in the market surrounding the local issues that have been going on for over a year,' DBS said in a statement. -- REUTERS

Acquisitions are a major source of growth in the banking industry. However, it is not exactly clear why DBS should be seeking an acquisition in South Korea. South Korea is a well developed economy with a highly developed banking market so the growth and revenue enhancement opportunities of entering the South Korean market via an acquisition are not clear. Furthermore, it is not immediately clear where the synergies are between the South Korean banking market and DBS' main operations in Southeast Asia and its fledgling operations in China, which just opened earlier this year.

In order to justify the acquisition, there would need to be significant value-enhancing opportunities that the KEB acquisition would bring to DBS' international banking services, such as investment banking or trade finance. But given that there is rather small amount of international trade between Singapore and South Korea and the main opportunity in this deal for international finance is between China and South Korea, DBS should focus much more on its organic growth in the mainland rather than seeking an acquisition in a market that is non-core to its operations. Southeast Asian companies are unlikely to list on the South Korean stock market, and similarly South Korean companies are unlikely to list their shares on the SGX. M&A activity between the two regions is also unlikely.

Furthermore, given the Singaporean origins of DBS and its predominantly Chinese culture, there would probably be several integration issues when it comes to merging the corporate cultures of KEB and DBS, the least of which being the different languages being used.

All in all this is probably good news for DBS shareholders that Jackson Tai has pulled away from the deal as any prospective deal would likely be risky and involve the winner's curse - destruction of shareholder value.

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