Shinhan Financial Group vs. Cerberus + KFB for Acquisition of Cho Hung Bank

The consortium of Shinhan Financial Group and the consortium of Cerberus have severely competed in acquisition of Cho Hung Bank.

The consortium of Cerberus increased its influence by bring Korea First Bank (KFB) and Shinsei Bank of Japan which submitted the acquisition proposal. As Newbridge Capital large shareholder of KFB was eliminated from a screening of proper qualification, it put up KFB and has been promoting the acquisition of Cho Hung Bank.

Public Fund Oversight Committee plans to discuss a selection of bidder for preferential negotiation by receiving the final price proposal submitted by two consortiums on December 11.

▽Joining between bidders 〓 When the government received the 1st Request for Proposal, Shinhan Financial Group was superior to others in aspects of the bank management capacity and fund. So, other bidders started to construct the united front considering that a single acquisition is difficult. Newbridge was eliminated from the 2nd examination, but it cooperated with Cerberus aiming to acquiring Cho Hung Bank. Also, Son Jeong-Eu, president of Soft Bank, Japan participated in the consortium.

Cerberus and Soft Bank have the indirect relationship with Newbriedge. Employees of KFB have been joining with a team of Cho Hung Bank`s due diligence of Cerberus.

The president of KFB said, “When acquiring Cho Hung Bank, we will respect opinions of employees. We cannot use KRW 3 trillion to be repaid at the end of next month as a source of revenues for the acquisition of Cho Hung Bank.

▽Who is advantageous? 〓 The decision standard of the government is the price and development of the bank industry. The stock price of Cho Hung Bank estimated by the government is KRW 5,750 per share (including the interest of public fund). It will exceed KRW 6,000 per share because it must include a premium of management right.

Shinhan and Cerberus consortium can hardly write down the prices larger than the desired prices of government, considering the potential insolvency factors of credit card and partial corporate loans of Cho Hung Bank.

Financial industries said that they must consider the development of long-term bank industry`. The executive of `A` bank said, “Because the fund based on the short-term investment gain evades the long term investment, the competitive strength of the bank could go down. Cho Hung Bank must be sold to the institute involved in the bank.”

Also, when the investment fund acquires the bank by establishing a paper company, it could avoid provisions of related to large shareholders in a law of banks.

The government already knew such an atmosphere and so will consider the case of Seoul Bank sales.

Do-Young Kim Chi-Young Shin nirvana1@donga.com higgledy@donga.com