In a groundbreaking move for the Korean financial services industry, Shinhan Bank has taken advantage of its financial holding company structure to buy a broker.
Shinhan's stock was up 10% as news broke that it had bought 30% of Good Morning Securities from a group of private equity investors. It will merge it with its own, much smaller, Shinhan Securities and by doing so, control around 45% of the new entity, which will be called Shinhan Good Morning Securities.
Shinhan will pay around $300 million for the stake. The entity will remain listed.
One interesting aspect of this is that Korea's somewhat sketchy takeover code means that a general offer does not have to be made. In Hong Kong or Singapore, buying a 30% stake would trigger a general offer, where the same price had to be offered to all minorities. In Korea, provided stock is bought from the market, through a broker, no trigger exists.
The stake was sold by Hambrecht & Quist (part of JPMorgan), Lombard Investments (part of CalPERS) and GIC of Singapore. They had invested in Good Morning when it neared bankruptcy. Sources close to the deal say they made an internal rate of return of 60% since they invested in late 1998.
Shinhan was advised by UBS Warburg. The private equity investors did not use advisors.