The headline grabbing news of DBS Group’s $9.1 billion takeover bid for PT Bank Danamon has drawn some welcoming views. Analysts generally welcomed the news, citing potential long term benefits to its enlarged developing markets profile.

CIMB, which maintained its ‘Outperform’ recommendation on DBS, said that Bank Danamon provides DBS the network in Indonesia to rival CIMB and UOB in the region. In turn, DBS can lend its funding advantage and capital strength to Bank Danamon, lifting the latter’s growth inhibitors.

Sharing the same positive outlook, Nomura noted that the acquisition of Bank Danamon rebalances and diversifies the DBS platform, which is currently too heavily dependent on Singapore and Hong Kong markets. “With Danamon, the share of collective group revenues from China, India and Indonesia will rise from 11 percent to 30 percent,” the research house added.

The Price Is Right?
Price is often the main subject of acquisitions. At a 52 percent premium, analysts believe that the acquisition cost of Bank Danamon is fair and reasonably priced. Notably, Daiwa Capital Markets pointed out that while the acquisition price does not look cheap, it does not think DBS has overpaid for this transaction. Daiwa supported its argument with the reason that the deal should be broadly EPS-neutral even in year one as opposed to its major acquisitions in the past. “Second, we do not see any need for further capital raising by DBS, as its core Tier 1 ratio should remain at above 10% post the completion of the deal,” it added.

DBS’s offer price represents 2.6 times of Bank Danamon’s book, which is generally cheaper than some of the similar acquisitions in the past. Particularly, Hongkong and Shanghai Banking Corporation’s purchase of PT Bank Ekonomi at 4.1 times price-to-book (PB) ratio as well as Maybank’s purchase of Bank Internasional Indonesia at 3.9 times, according to data provided by DMG & Partners.

Political Hurdles
Unsurprisingly, opposing views came from Indonesian lawmakers who remarked that they wanted to bar heavy foreign ownership of local banks, according to Reuters’ report. However, the lawmakers signaled that they may not be able to stop DBS’s purchase of Bank Danamon. Previously, the country’s regulation to cap foreign ownership of local lenders at around 50 percent had been scrapped because the Indonesian government wanted to attract foreign buyers for Bank Mutiara which had been bailed out in the credit crisis.

Looking ahead, potential buyers eyeing a share of Indonesia’s banking assets may face obstacles as its parliament re-enacts the banking law which could be implemented by mid-2013, before the country’s presidential election in 2014. DBS estimates its purchase of Bank Danamon to be completed in the second half of this year.

The share price of DBS was down 2.8% to close at $13.79 on 3 April since its close on 30 March, last Friday. On the same day, shares of Bank Danamon surged by 39 percent to close at 6,400 rupiah after being suspended on Monday and last Friday.

DBS’s Capital Adequacy Ratios
*Following the acquisition of Bank Danamon

DBS’s Credit Ratings