Mirae Asset Group Chairman Park Hyun-joo is causing a sensation in the investment bank industry with his bold merger and acquisition (M&A) movements. As Mirae Asset Securities, which took over Daewoo Securities from Korea Development Bank, is considering participating in a bid to acquire Hyundai Securities, the last capital chance in the investment bank industry, a mega securities company is expected to emerge.
The reason why Park is reviewing the takeover attempt is that it is difficult to lay the groundwork for Mirae Asset to grow into a global investment bank with equity capital of 10 trillion won (US$8.62 billion) with Daewoo Securities alone. At the end of last year, he announced the company’s target of reaching 10 trillion won (US$8.62 billion) in combined capital, 1 trillion won (US$862.07 million) in pre-tax profit and a 10 percent pre-tax ROE (return on equity) by 2020. Market watchers expected that it would become the country’s largest brokerage by assets, with a combined capital of around 8 trillion won (US$6.9 billion), through the takeover of Daewoo Securities. However, its actual combined capital stands at only about 5.6 trillion won to 5.8 trillion won (US$4.83 billion to 5 billion) due to the deduction of combined stocks with the merger of the two companies. This is because some say an additional M&A deal of another large securities firm, just like Hyundai Securities, is a key alternative to achieve its target.
At present, Mirae Asset Securities will join the Hyundai bid by forming a consortium through a private equity fund (PEF) formed by LK Investment Partners. As a strategic investor, the company is expected to secure some shares in Hyundai Securities with the consortium first, purchase shares of consortium companies one by one, and finally take over Hyundai Securities later. Since Mirae Asset has decided to indirectly acquire the company, it can get away from the eligibility screening system of the large shareholder and regulations from the Fair Trade Commission.
According to industry sources, Mirae Asset already mobilized 800 billion won (US$689.66 million) of acceptance financing to take over Daewoo Securities, being strapped for cash. Therefore, the company is likely to raise funds to acquire Hyundai Securities through a leveraged buyout (LBO). A LBO is an acquisition of a company using a significant amount of borrowed money to meet the cost of acquisition. Often, the assets of the company being acquired are used as collateral for the loans in addition to the assets of the acquiring company.
Currently, Hyundai Securities put up for a sale of 22.56 percent shares in total, including a 22.43 percent stake held by Hyundai Merchant Marine and a stake owned by other shareholders. It is worth 330 billion won (US$284.48 million) in terms of market capitalization. Considering customer deposits, equity capital and management right premium as well as the share’s acquisition price, the price tag for the deal is estimated at 500 billion won (US$431.03 million). However, industry watchers expect that the it will reach 600 billion won to 800 billion won (US$517.24 million to 689.66 million), which is more than double the market price, as more companies want to acquire Hyundai Securities. In fact, Hyundai Securities shares rose 2.81 percent to close at 6,950 won (US$5.99) on the KOSPI on the same day from the previous day due to a variable of Mirae Asset Securities. As the first sell-off attempt did not come to anything last year, the figure fell to 4,950 won (US$4.27) at the beginning of the year. However, it reached an all-time high in three months.