Several non-Thai banks have put forth their own bids. In addition to Malay lending giant Maybank (MAY – SINGAPORE), interested bidders include Japanese lender Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU) and Malay bank CIMB Group Holdings (CIMB – KUALA LUMPUR). While none of these bids have yet been formalized, it appears likely that one will eventually win out over the others. GE is expected to solicit a second round of bids in the coming months.
Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU) could afford a large takeover with a massive cash stockpile that is continually growing. In the last year Mitsubishi had a 102% gain in quarterly earnings year over year. Their net income is now up to $1.46 billion. The market has noticed these gains with a 17.12% return for their stock in the last year. It may be able to improve on its already great performance with an acquisition like this.
What May Happen Next
This deal has two important ramifications. For starters, it is indicative of General Electric Company (NYSE:GE)’s desire to continue to unwind the convoluted holdings of its GE Capital financial arm. This unit sustained heavy losses during the recent financial crisis and is widely seen as GE’s weakest major division. Regardless of the exact terms of the final bid, this deal will be wildly profitable for GE Capital. After purchasing 33 percent of Bank of Ayudhya for about $626 million in 2007, GE has already earned $466 million on the partial sale and will probably recoup another $5.5 billion or so from the sale of the remaining 25.3 percent stake.
This sale also hints at the possibility of a period of consolidation in the rapidly maturing Southeast Asian banking sector. Earlier in the year, Singaporean banking giant DBS Group Holdings (DBSM – SINGAPORE) agreed to purchase Indonesian lender Bank Danamon (BDMN – JAKARTA) for around $7 billion. GE’s successful Ayudhya sale may indicate that investors expect more deals in the sector.
In sum, this sale represents an exciting opportunity for investors who have an interest in developing markets. With few legal hurdles to clear, it could go through as early as mid-summer 2013. Conservative investors who wish to reap the cash-flow benefits of this sale could play the transaction by taking a long position in General Electric Company (NYSE:GE). More aggressive investors might wish to scan the Asian banking landscape to find other consolidation or spin-off targets. Of course, it is essential that investors who wish to play this deal perform adequate due diligence.
The article Selling Its Stake In A Foreign Bank originally appeared on Fool.com and is written by Mike Thiessen.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
