Sources confirmed that Shinhan agreed to pay between W68,000 and W68,500 per LG share to acquire 85% of the shares outstanding from LG Card creditors. LG Card has 125 million shares outstanding thus Shinhan valued the company at W8.5-8.6 trillion. It is understood that Hana offered W67,500 to acquire 90% of the shares thus valuing LG Card at W8.4 trillion and the third bidder in the fray National Agricultural Cooperative Federation (ôNACFö) bid between W60,000-65,000 per share for a smaller number of shares.
LG Card was advised by the Korea Development Bank (KDB) M&A department and JPMorgan. KDB is also lead creditor and the largest equity shareholder of LG Card. The sellside advisors did not yesterday disclose financial details of the Shinhan bid saying only that it had ôbeen selected as the preferred bidderö. Hana Financial Group was named as the reserve bidder. The bids are subject to due diligence and sources say they could be revised downwards hence the reluctance of the sellside advisors to release numbers.
All three bidders are creditors of LG Card and thus own equity in the company. Notes Jason Yu, head of research at Samsung Securities, the current shareholdings are Shinhan 7.1%, Hana 4.2% and NACF 14.6%. In a research update published after yesterday's news, Samsung Securities netted out the 7.1% Shinhan already owns to arrive at the outlay Shinhan will make - W6.7 trillion at the bid price of W68,000 per share for an incremental 78%.
This could make the current transaction Korea's second largest in the financial services space. The Kookmin Bank takeover of Korea Exchange Bank in April this year for W6.95 trillion is in number one spot.
Analysts were generally positive on the development. Daewoo Securities had commented in its report dated August 3 that after an LG Card acquisition ôthe non-banking businessesÆ contribution to total earnings should rise furtherö. Samsung Securities reiterated a buy on Shinhan commenting that Shinhan should ôemerge as the biggest card operator in Koreaö with its market share increasing from current levels of ô8.2% to 21.9%, well above those of its peersö.
LG Card went under as a result of the credit card bubble and had to be bailed out by a creditor consortium led by KDB. It turned profitable last year earning a net profit of W1.36 trillion. The sale of LG Card which was announced earlier this year attracted interest from a number of players, both domestic and global. It was speculated that Merrill Lynch evinced early interest but chose not to bid. Standard Chartered and Barclays were among the shortlisted preliminary bidders in April. The former was in the fray until submission of bids but eventually it became a domestic playing field with only Shinhan, Hana and NACF submitting final bids. (As of April 11, the BNP Paribas Group was the largest shareholder of Shinhan with a 9.38% stake.)
Both LG Card and Shinhan's stocks have been moving up over the last few days as transaction information leaked to the market. The overall Korean stockmarket also showed bullishness yesterday moving up 1.58%. Over a million shares of both LG card and Shinhan were transacted during the course of the day. LG Card closed the day at W60,000 up 4.53% and Shinhan, which saw a 3% early gain before profit taking, ended at W46,500, up 1.64%.
The deal will cement JPMorganÆs standing in the M&A league tables for the year, adding roughly $7 billion to its volumes. As per Dealogic numbers at the end of July JPMorgan trailed Goldman Sachs in Asia ex-Japan announced M&A at $18.7 billion to GoldmanÆs $29.8 billion. This transaction will add significantly to JPMorganÆs tally, bringing it closer to Goldman. UBS advised Shinhan.
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