When the price tag of a controlling stake in Hyundai Securities was unveiled late Tuesday, it surprised many in local financial circles.
The 1.25 trillion won ($1.09 billion) KB Financial Group has agreed to pay is nearly four times the current market value of the stake -- 22.56 percent of the country’s fourth-largest brokerage house -- and almost twice what it initially expected to fetch.
KB Financial Group chairman Yoon Jong-kyoo
“That sounds pretty expensive for less than a quarter of the company,” said an industry source. “I am not questioning KB Financial’s ability to fund the acquisition, but it will feel a burden to prove the deal is worth that much.”
KB Financial stressed in a statement that the deal was for diversification of its business portfolio and would create synergy for the group whose strength is in its vast retail customer base and extensive branch network.
“We had a very thorough due diligence (on Hyundai Securities) and have reasons to believe (1.25 trillion won) is an appropriate price,” the group’s chairman Yoon Jong-kyoo was quoted as saying by a local media outlet, defending the deal.
The hefty price tag – 1.68 times Hyundai Securities’ entire book value of 745 billion won – is a sign of how serious KB Financial is in its push to bolster its nonbanking business, as margins continue to drop in its mainstay banking segment, experts said.
The group earns 67 percent of its revenue from retail banking through KB Kookmin Bank. Its own brokerage KB Securities & Investment has only a miniscule presence in the industry, but its joint branches with KB Kookmin have seen assets under management grow by an annual average of 55 percent.
Last year, it lost out to Mirae Asset Financial Group in the race to take over the industry’s second-ranked firm, KDB Daewoo Securities. In 2013, it was also beaten by NH Financial Group in a 1.07 trillion won deal for Woori Securities and Investment.
“The proposed takeover of Hyundai Securities is a net positive for KB Financial for its expected synergy. Regarding the views that it is paying too much, KB Financial will be able to bring down the average price per share through additional stock purchases, including those held by Hyundai Securities itself,” said Kim Jae-woo, an analyst of Samsung Securities.
To put Hyundai Securities under its umbrella legally, KB Financial will have to raise its stake in the firm to at least 30 percent. It will likely push to buy treasury stocks held by Hyundai Securities, which account for 7.1 percent of the firm’s outstanding shares, experts said.
Hyundai Group is selling the Hyundai Securities stake owned by Hyundai Merchant Marine and the group’s owner family as part of its efforts to salvage the debt-ridden shipping firm. It aims to complete the deal within the first half of this year.
KB is to start due diligence on the brokerage, which ranks fourth in the industry with 3.2 trillion won in assets, before finalizing the price and other contract terms.
By Lee Sun-young (milaya@heraldcorp.com)