3rd Sep 2007 09:30
HSBC Holdings PLC03 September 2007 HSBC AGREES TO ACQUIRE MAJORITY SHAREHOLDING IN KOREA EXCHANGE BANK THE ACQUISITIONHSBC Holdings plc ("HSBC"), through its indirect, wholly-owned subsidiary, HSBCAsia Pacific Holdings (UK) Limited ("HSBC Asia"), has agreed to acquire 51.02per cent of the issued share capital of Korea Exchange Bank ("KEB"), the sixthlargest bank in Korea. The shares will be acquired from LSF-KEB Holdings SCA, a holding company ownedby Lone Star Fund IV (US) LP and Lone Star Fund IV (Bermuda) LP (collectively"Lone Star"). The purchase price is KRW3,400 billion plus US$2,700 millionamounting in total to the equivalent of approximately US$6,317 million, payablein cash, assuming the acquisition is completed on or before 31 January 2008. The acquisition is subject to a number of conditions including the receipt ofapplicable governmental and regulatory approvals, particularly in Korea from theFinancial Supervisory Commission ("FSC") and the Fair Trade Commission. In theevent that the acquisition is completed after 31 January 2008, the purchaseprice will be increased by US$133 million, also payable in cash. Under a shareholders' agreement with Lone Star, The Export-Import Bank of Korea("KEXIM") is entitled to require HSBC Asia to purchase, on substantially thesame terms, part or all of its shareholding in KEB (KEXIM's entire shareholdingrepresents a further 6.25 per cent of the issued share capital of KEB). HSBC does not intend to make a tender offer to KEB's remaining shareholders and,following completion of the acquisition, KEB will remain a company listed on theKorea Exchange (the "KRX"). HSBC Group Chairman Stephen Green said, "Our stated strategy is to focus onexpanding HSBC's presence in important growth economies, particularly in Asia,Latin America and the Middle East and to maintain our capital strength to allowus to take advantage of strategic opportunities. This prospective acquisitionreflects that strategy. "It would provide HSBC with a significant presence in Asia's third largesteconomy and reinforce our position as Asia's number one international bank. "HSBC has a long history in Korea. We are delighted with this prospectiveacquisition, which we believe would benefit the customers and staff of both KEBand HSBC." REASONS FOR AND BENEFITS OF THE TRANSACTIONHSBC is one of the world's largest banking and financial institutions with anunparalleled international network across 83 countries and territories. Theacquisition accords with HSBC's stated strategy of targeting investment at highgrowth markets with international connections and will further enhance the HSBCGroup's footprint in the Asia-Pacific region. HSBC believes that KEB would benefit from having a long-term, andinternationally focused, strategic shareholder which would enable it to enhancefuture growth prospects. KEB has particular strengths in trade finance andforeign exchange, complementing HSBC's global capabilities in these areas. HSBCwould also offer KEB the opportunity to add to the range of services it offersin other areas, from personal finance and credit cards to building deepercommercial and corporate relationships. The importance of, and role played by, KEB in Korean international business,when linked with HSBC's broader global network, will provide the leadingplatform to serve Korea's businesses and people internationally. As a bank with a long history in Korea, and as the prospective majorityshareholder in one of the nation's largest financial institutions, HSBC intendsto make a full contribution to the further development of the financial servicesindustry in Korea. KEB's listing on the KRX will provide a continuing opportunity for Koreaninvestors to participate in KEB's future. FINANCIAL RATIONALE FOR TRANSACTIONIt is expected that the acquisition will be accretive to HSBC's earnings pershare in its first full year of operations within the HSBC Group. HSBC hasidentified a number of areas of potential business growth for KEB as a member ofthe HSBC Group. INFORMATION ON KEBKEB has over 5.4 million deposit customers and is the sixth largest bank inKorea, as measured by total assets at 30 June 2007. It has over 350 branches anda presence in 18 countries, making it Korea's leading international bank. At 30 June 2007, KEB's total assets were KRW73.5 trillion (US$78.2 billion) withshareholders' equity of KRW6.3 trillion (US$6.7 billion). In the year ended 31December 2006, KEB generated pre-tax profits of KRW1,482 billion (US$1,577million) (2005: KRW1,654 billion (US$1,760 million)) and net income of KRW1,006billion (US$1,070 million) (2005: KRW1,934 billion (US$2,058 million)). Netincome in the six months to 30 June 2007 was KRW516 billion (US$549 million).These results were prepared in accordance with Korean GAAP. ACQUISITION AGREEMENTUnder an agreement entered into on 3 September 2007 with Lone Star, HSBC Asiahas conditionally agreed to purchase 329,042,672 KEB shares, representing 51.02per cent of the issued share capital of KEB, from Lone Star. Conditions and termination rightThe acquisition is conditional upon the satisfaction or waiver of certainconditions on or before 30 April 2008 including (but not limited to): • KEB, HSBC Asia and other relevant members of the HSBC Group having received all necessary governmental and regulatory approvals, particularly in Korea (and none of the approvals being granted subject to any conditions having adverse effect). • No adverse effect having occurred in relation to KEB's business, assets, operations or liabilities that is material to the KEB Group taken as a whole (excluding the effects of changes in general economic, financial, political, regulatory or market conditions applicable to similar businesses in Korea). • Certain specified actions in relation to KEB not occurring without the prior consent of HSBC Asia. • No material business restriction or suspension having been imposed on KEB as a result of the ongoing litigation in relation to the merger of the KEB Card business with KEB in 2004. Within Korea, applications for approval will be made to the FinancialSupervisory Commission and the Fair Trade Commission. In the event that theformal application for approval has not been submitted to the FSC on or before31 January 2008, Lone Star has the right to terminate the acquisition agreement. Further due diligenceUnder the acquisition agreement, HSBC Asia has the right to conduct further duediligence on KEB in a period of 40 days following signing of the agreement,which may be extended by a further seven days in certain circumstances. HSBCAsia is then entitled, within five days of the end of that period, to notifyLone Star that it does not wish to proceed with the acquisition in which casethe acquisition agreement will terminate. ConsiderationThe consideration for the shares is KRW3,400 billion plus US$2,700 millionamounting in total to the equivalent of approximately US$6,317 million,equivalent to KRW18,045 (US$19.20) per share, payable in cash, assuming theacquisition is completed on or before 31 January 2008. In the event thatcompletion has not taken place on or before 31 January 2008, HSBC will pay afurther US$133 million, equivalent to KRW380 (US$0.40) per share. Theacquisition agreement is conditional on completion taking place on or before 30April 2008. Settlement on closing will be made in cash in US dollars, with theKorean won element of the consideration converted into US dollars at the thencurrent exchange rate. The consideration expressed in KRW at KRW18,045 per share represents a premiumof 21.5 per cent to the share price as at 31 August 2007 of KRW14,850 per share,a 26.8 per cent premium to the 10 day average trading price to 31 August 2007 ofKRW14,230 per share, a 29.0 per cent premium to the 30 day average trading priceto 31 August 2007 of KRW13,990 per share and a multiple of KEB's stated bookvalue at 30 June 2007 of 1.83 times. The consideration payable will be offset by any dividends in respect of theshares subject to the acquisition paid by KEB by reference to a record datewhich is prior to the registration of HSBC Asia as a shareholder entitled to anysuch dividend. The consideration was arrived at after arm's length negotiations between theparties. HSBC was advised by HSBC Corporate, Investment Banking and Markets andUBS AG acting through its business group, UBS Investment Bank. The Directors of HSBC believe the terms of the transaction are fair and reasonable and in theinterests of HSBC's shareholders as a whole. The acquisition will be financed from HSBC's own resources. Followingcompletion, KEB will be accounted for as a subsidiary in HSBC's consolidatedfinancial statements. GuaranteeHSBC Asia will have the benefit of a guarantee from Lone Star Fund IV (US) LPand Lone Star Fund IV (Bermuda) LP guaranteeing the financial obligations ofLSF-KEB Holdings SCA under the acquisition agreement. KEXIMKEXIM also owns 40,314,387 shares in KEB and, under the terms on which Lone Staroriginally invested in KEB, KEXIM has the right to require any purchaser of LoneStar's shares to acquire part or all of its shares on substantially the sameterms. If this right is exercised in respect of all of KEXIM's shares, it wouldinvolve the payment by HSBC Asia of KRW727 billion (US$774 million) to KEXIM,assuming that completion takes place before 31 January 2008 and theconsideration is set in Korean won. If completion takes place after 31 January2008, there will be a corresponding increase in the amount payable to KEXIM inline with the additional payment to Lone Star. Such purchase, if KEXIM exercisesits right, would be conditional on, and completed at the same time as,completion of the purchase of Lone Star's KEB shares. Management and operationsFollowing completion and subject to relevant approvals, HSBC will be entitled tonominate a majority of directors to the Board of KEB including KEB's Chairmanand Chief Executive and certain other officers. The KEB name will be retained withconsideration being given to the addition, in a suitable form, of reference toKEB being a member of the HSBC Group to reflect its majority shareholding. Notes: HSBC Holdings plcHeadquartered in London, HSBC is one of the largest banking and financialservices organisations in the world. Its international network comprises some10,000 properties in 83 countries and territories in Europe; Hong Kong; rest ofAsia-Pacific, including the Middle East and Africa; North America and LatinAmerica. With listings on the London, Hong Kong, New York, Paris and Bermudastock exchanges, shares in HSBC are held by about 200,000 shareholders in over100 countries and territories. The shares are traded on the New York StockExchange in the form of American Depositary Shares. HSBC provides acomprehensive range of financial services to more than 125 million customersthrough four customer groups and global businesses: Personal Financial Services(including consumer finance); Commercial Banking; Corporate, Investment Bankingand Markets; and Private Banking. The Hongkong and Shanghai Banking Corporation Limited is an indirect,wholly-owned subsidiary of HSBC Holdings plc. HSBC Asia is a wholly-ownedsubsidiary of The Hongkong and Shanghai Banking Corporation Limited. Lone StarLSF-KEB Holdings SCA is a Belgian incorporated holding company which holds329,042,672 shares in KEB. It is controlled by the general partner of Lone StarFund IV (US) LP, and its ultimate investors include the investors in Lone StarFund IV (US) LP and other institutional investors. Lone Star Funds is a familyof private investment limited partnerships established to facilitate investmentby a group of investors into financial and other assets. KEXIMKEXIM is an official export credit agency owned by the Korean governmentproviding comprehensive export credit and guarantee programmes to support Koreanenterprises in conducting overseas business. MiscellaneousThe acquisition constitutes a Class 2 transaction for HSBC under the ListingRules of the UK Financial Services Authority and a discloseable transaction forHSBC under the Hong Kong Listing Rules. A circular containing furtherinformation on the transaction in accordance with the relevant requirements ofthe Hong Kong Listing Rules will be mailed to HSBC shareholders who have electedto receive corporate communications in printed form and will be available at thesame time on HSBC's website, www.hsbc.com. As at the date of this announcement, the Directors of HSBC are S K Green, TheBaroness Dunn*, Sir Brian Moffat*, M F Geoghegan, Lord Butler*, J D Coombe+, R AFairhead+, D J Flint, W K L Fung*, J W J Hughes-Hallett+, Sir MarkMoody-Stuart+, G Morgan+, S W Newton+, S M Robertson+ and Sir Brian Williamson+. * Non-executive Director+ Independent non-executive Director To the best of the knowledge, information and belief of the Directors of HSBChaving made all reasonable enquiries, both (a) Lone Star and its ultimatebeneficial owners and (b) KEXIM and its ultimate beneficial owners are thirdparties independent of HSBC and its connected persons (as defined under the HongKong Listing Rules). The announcementIn this announcement: (i) "HSBC" means HSBC Holdings plc and its subsidiaries unless the context otherwise requires. (ii) Figures in KRW have been translated into US$ at the rate of KRW939.9 = US$1 and figures in US$ have been translated into KRW at the rate of US$1 = KRW939.9 for indication purposes only. (iii) The financial figures for KEB for the years ended 31 December 2006 and 2005 have been extracted from the relevant audited accounts for KEB which were prepared on a consolidated basis. The financial figures for KEB for the six months to 30 June 2007 have been extracted from the relevant unaudited interim accounts for KEB which were prepared on a non-consolidated basis. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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