An impressive showing for M&A

An impressive showing for M&A

Bangkok Bank's Indonesian buy capped a robust period of corporate transactions

The Standard Chartered office in Sathon district. BBL entered a conditional deal to buy StanChart's stake in Permata. (Photo by Pornprom Satrabhaya)
The Standard Chartered office in Sathon district. BBL entered a conditional deal to buy StanChart's stake in Permata. (Photo by Pornprom Satrabhaya)

Thailand experienced strong merger and acquisition (M&A) activity in 2019, with deals including the US$2.7-billion (81.3-billion-baht) acquisition by Bangkok Bank of Indonesia's PT Bank Permata in December and Hong Kong-based FWD Group's purchase of Siam Commercial Bank Life Assurance for 92.7 billion baht in July.

The food and hospitality business also saw deals, albeit at a much lower value, as giant food operators sought to stay afloat amid proliferating food delivery channels.

Thailand remains attractive to investors because of numerous opportunities in the market, the ease of doing business and the nation's openness to trade, according to Baker McKenzie.

The Bangkok Post covered some of the notable deals secured in 2019.

Permata acquisition

Bangkok Bank (BBL) in December entered into a conditional share purchase agreement to buy an 89.1% stake in Indonesia's PT Bank Permata in a deal worth $2.7 billion, marking the first major purchase of an overseas lender by a Thai bank.

The deal suits BBL's strategy to become a regional lender with a larger presence in Southeast Asian markets.

BBL, the country's third-largest lender by assets, expects the transaction to be completed in 2020.

As of Sept 30, Permata's book value was 1,498 rupiah (3.23 baht) per share, according to a BBL statement.

Funding is derived from a combination of internal resources and financing through the bank's regular funding sources, BBL said, adding that it has no plan to recapitalise to finance the acquisition.

Founded in 1955, Permata is a commercial bank that offers banking products and services to over 3.5 million retail, small-business and corporate customers. The bank is listed on the Indonesia Stock Exchange.

As of Sept 30, Permata had 332 outlets, including branches and mobile branches, and 989 ATMs across 62 cities in Indonesia. The bank has loans of 108 trillion rupiah and deposits of 120 trillion rupiah.

BBL has the largest international banking business network among its industry peers (except for those whose parent firms are foreign banks). BBL operates in all Asean countries except Brunei.

The integration of TMB Bank and Thanachart Bank is scheduled for completion in 2020.

Bank consolidation

After months of speculation about TMB Bank's integration with one of its industry peers, the bank entered into a memorandum of understanding with Thanachart Bank (TBank) in February for consolidation in a deal worth 167 billion baht, marking the local banking industry's largest M&A deal.

The new bank resulting from the consolidation of TMB, the country's seventh-largest bank by assets, and TBank, the sixth-biggest bank, will remain in sixth place with 1.91 trillion baht in assets. Bank of Ayudhya ranks fifth with 2.27 trillion baht.

TMB and TBank customers total 10 million, of whom less than 10% are both banks' clients. The banks have 900 branches in total and employ about 19,000 workers.

Given that the banks' strengths are different, their major shareholders expect the merger deal to create synergy.

The new entity emerging from the integration of TMB and TBank plans to focus on three core business areas: auto loans, mortgages and financial advisory services. Auto lending is an area of expertise for TBank, the market leader.

According to the plan, TMB will acquire TBank through newly issued shares and debt financing.

After the integration, Dutch bank ING, Thanachart Capital (TCAP), the Finance Ministry, Canada's Scotia Netherland Holding (BNS) and Vayupak Fund will hold stakes of 21.97%, 20.8%, 11.25%, 5.69% and 8.77%, respectively, while minor shareholders will make up the rest.

The Finance Ministry holds a 25.9% stake in TMB, and ING has a 29.9% stake. SET-listed TCAP holds a 51% stake in TBank, while BNS owns the remainder.

In December, TMB raised 38 billion baht through its shareholders' exercise of transferable subscription rights (TMB-T1) for newly issued shares as part of its planned acquisition.

The bank also mobilised 15 billion baht from offering paper countable as Tier 2 capital to local investors and a further $400 million from issuing paper countable as Tier 1 capital to foreign investors.

Moreover, TMB already acquired a 99.96% stake in TBank from TCAP and BNS and the remaining 0.04% from minority investors at an initial price of 27.55 baht per share. The final price will be set later.

TMB will issue 25.1 billion newly issued ordinary shares at a price of 2.16 baht per share, equal to 1.1 times TMB's book value per share, to TCAP's, BNS's and TBank's minority shareholders.

Of the total shares, 19.4 billion will be sold to TCAP, 5.72 billion to BNS and the remainder to TCAP for re-offering to minority investors in TBank.

The integration is scheduled to be completed in 2020.

SCB CEO Arthid Nanthawithaya (right) with FWD group CEO Huynh Thanh Phong.

Insurance deal

A few years ago, talks between Siam Commercial Bank (SCB), the country's largest bank by assets, and Hong Kong-based insurer FWD Group on a potential sale of SCB Life Assurance failed to reach a conclusion on pricing.

The parties resumed negotiations this year, and they eventually reached a deal.

SCB in the middle of the year entered into a binding agreement to sell 99.2% of SCB Life to insurer FWD Group Financial Services for 92.7 billion baht, marking Southeast Asia's biggest life insurance acquisition.

The bank and the Hong Kong-based insurance firm, owned by a son of tycoon Li Ka-shing, also struck a 15-year bancassurance agreement, enabling FWD to sell life insurance products through more than 1,000 SCB branches nationwide. The bank, in turn, obtained a consideration worth 17.7 billion baht for the deal in which income will be realised over the course of 15 years.

After the acquisition, FWD Thailand's total policyholders number about 3.7 million.

FWD has been aggressively expanding its footprint in Asean, where nearly all countries still have low insurance penetration, presenting an opportunity for the business.

Pacific Century Group, FWD's parent, in 2012 reached an agreement to acquire life insurance, general insurance, pension and financial planning units in Hong Kong and Macau, plus life insurance operations in Thailand, from ING in a deal worth 64 billion baht.

FWD's Asia presence includes Indonesia, Japan, Singapore, the Philippines, Thailand and Vietnam.

Minor International purchased the operator of BonChon restaurants. (Photo by Anusorn Sakseree)

Restaurant takeaway

With the company foreseeing huge potential growth for the seafood category, SET-listed MK Restaurant Group acquired in early September a 65% stake in Laem Charoen Seafood through Catapult, a 99.99% subsidiary of the group, for 2.06 billion baht.

The transaction due to be completed this month aligns with the group's strategy to expand in the restaurant business.

Rit Thirakomen, president of MK Restaurant Plc, said the deal would help raise the company's competitiveness after the restaurant business landscape completely changed in recent years.

2020 is a challenging year for all restaurant operators because restaurants will not only compete with the same players in the restaurant business, but also face food delivery channels.

BonChon and Santa Fe plan to become more active in the market while under the umbrella of two cash-rich companies, Minor Food Group and Singha Corporation.

Moreover, more than 50 international restaurant chains are exploring opportunities in Thailand via the franchise system.

The purchase of Laem Charoen will help complete MK's portfolio with various formats -- suki restaurants, Japanese food, food courts, desserts, seafood -- that are popular among Thais.

Laem Charoen has 26 branches nationwide. Combined with other restaurant chains under MK Group, the total will reach 696 branches, strengthening the group's market position in the food business.

MK acquired a 65% stake in Laem Charoen Seafood. (Photo by Seksan Rojjanametakun)

Beefing up

Not long after MK acquired a majority stake in Laem Charoen Seafood, Boon Rawd Brewery Group, the maker of Singha beer, made a move in October by spending 1.5 billion baht to acquire 88% of KT Restaurants Co, the operator of Santa Fe steakhouses, through food business unit Food Factors Co.

Piti Bhirombhakdi, chief executive of Food Factors, attributed the purchase to the group's dwindling confidence in its beer business in the long term. Moreover, the food retail business in Thailand has experienced tremendous growth in the past 3-4 years, partly due to urbanisation.

Many restaurants approached Boon Rawd, but Mr Piti chose Santa Fe because of its similar business culture. Santa Fe is not a big restaurant chain, but sales and net profit are attractive. Santa Fe's sales and profit have seen continuous growth over the last four years from 929 million baht and 28 million baht, respectively, in 2015 to 1.15 billion baht and 46 million baht in 2018.

Steak restaurants are a popular choice among Thais, and there is less competition in the segment.

Founded a decade ago, Santa Fe has 117 restaurants across the country. Santa Fe became the fourth restaurant brand under Food Factors' umbrella, apart from Farm Design, Kitaohji Japanese Restaurant and EST.33 by EST.

Fowl play

SET-listed Minor International (Mint) was the latest restaurant buyer, in November taking over Chicken Time, a chain restaurant, which operates over 40 outlets in Thailand under the popular BonChon brand.

Through Minor Food Group (MFG), a subsidiary in which it owns 99.73%, Mint acquired a 100% stake in Chicken Time for 2 billion baht.

The deal will let Minor Food Group operate existing BonChon stores in Thailand. While the investment does not include the franchise rights to open new stores, Mint is in the process of discussing a potential partnership with the master franchise rights holder to allow Mint to further expand BonChon nationwide, according to a release.

BonChon, which was founded in 2002 in South Korea, has become a strong global brand as Korean-style fried chicken gains popularity.

The brand has a specialised Korean-style fried chicken glazed with signature sauces, creating customer loyalty for distinctive crispy chicken and other Asian fusion dishes.

BonChon has rapidly expanded worldwide, covering the US, Bahrain, Kuwait, the Philippines, Singapore, Cambodia, Vietnam, Myanmar and Thailand.

The first BonChon store in Thailand opened in 2011 and caught on fast, especially among millennial customers.

William Heinecke, founder and chairman of Mint, said the already lucrative portfolio of BonChon in Thailand will bring the group immediate revenue and earnings to further sharpen the group's growth trajectory.

"We believe Thailand continues to offer a promising long-term outlook based on its growing middle class and increasing personal income," Mr Heinecke said.

More from AWC

On Oct 10, 2019, Asset World Corporation (AWC), the hospitality and property firm of Thai billionaire Charoen Sirivadhanabhakdi, raised 48 billion baht in the largest initial public offering (IPO) ever in Thailand.

The company announced that the proceeds would be used to acquire assets and develop and renovate existing properties, which consist of hospitality, retail/wholesale and office buildings.

After the IPO, AWC's board approved a budget of 55 billion baht for a five-year strategic plan that aims to have 27 total hotels with 8,506 rooms by 2024, up from 14 hotels with 4,421 rooms now.

About half of the 55-billion-baht budget has been set aside to purchase assets in Bangkok and major tourist destinations from TCC Group, owned by the Sirivadhanabhakdi family.

The targeted assets include four hotels in Bangkok and major provinces, six under-development or under-renovation hotels and two under-development mixed-use projects.

AWC also entered agreements with Marriott International in November, bringing three hotel brands to Thailand to help strengthen the hospitality service of the Thai side.

Under the agreements, AWC is expected to open the 248-room Courtyard by Marriott in Phuket in late 2020, as well as the 900-room Marriott Marquis hotel and 398-room JW Marriott hotel located at ASW's new mixed-use project in Pattaya.

The developments make AWC the largest owner of mid- to upper-scale hotels in Thailand, with a portfolio including management of international hotel chains like Hilton, InterContinental, Melia, Banyan Tree, Okura, Le Meridien and Marriott.

The company said the investment expansion in the hospitality sector aims to serve the growing global tourism industry and support more than 300 million Mice (meetings, incentives, conferences, exhibitions) travellers worldwide.

Expansions to other core businesses such as retail and wholesale are in the pipeline, aiming to have 415,481 retail spaces on AWC's 11 properties, both operating and under development, in five years.

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