Longreach will acquire the mid-sized Taiwanese bank which has 53 branches and NT$313 billion in total assets (as at December 2006). EnTie made a pre-tax loss of NT$2.8 billion in the first quarter of 2007 and a loss of NT$5.9 billion for calendar 2006. Sources say that the agreed price represents a multiple of 1.4 times book value, or 2.5 times if provisions and losses from EnTie's consumer loans are taken into account.
Longreach will split its NT$23 billion investment into three tranches. It will subscribe to 1.36 billion new shares at NT$9.5 per share and 622 million convertible perpetual preferred shares, also at NT$9.5 each. The preferred shares are convertible into EnTie Bank common shares at a one-to-one ratio and can be redeemed 10 years from issuance. Longreach will also acquire 442 million shares from EnTie shareholders at the same price. The structure enables Longreach to deploy most of its capital in turning around EnTie.
The price of NT$9.5 per share represents a 21% premium to EnTie's closing price on Thursday, June 14, the last trading day before the deal was announced.
Longreach and its co-investors will hold 51% of EnTie BankÆs fully diluted share base once the transaction closes and also gain the right to appoint the majority of directors on EnTie BankÆs board and rights to appoint senior management at the bank.
The current controlling shareholders of EnTie, the Hung Tai Group, will subscribe to NT$11.0 billion of convertible bonds issued by EnTie Bank. ôThe subscription represents the Hung Tai GroupÆs commitment to EnTie Bankö, says Longreach in a written statement. The bonds have a maturity of three years and are convertible into common shares of EnTie Bank at a conversion price of NT$19.0. Via the convertibles issued to the Hung Tai Group, Longreach gains capital protection against the loan portfolio of EnTie turning bad. If losses materialise from such loans, the Hung Tai Group will convert the bonds.
The Hung Tai Group may also purchase up to 193 million convertible perpetual preferred shares at NT$19.0 per share worth NT$3.66 billion.
Longreach is a private equity firm founded in October 2003 with a focus on North Asia. It currently has $750 million under management with offices in Hong Kong and Tokyo. LongreachÆs founders and senior members are Mark Chiba, former president of UBS Securities Japan, Masamichi Yoshizawa, ex-head of technology investment banking at Morgan Stanley Japan, and Yasuyuki Miyoshi, former head of restructuring advisory at Merrill Lynch Japan.
LongreachÆs EnTie deal follows acquisitions of Taiwanese banks by three global banks. In September 2006, Standard Chartered acquired Hsinchu International Bank, TaiwanÆs seventh largest private sector bank, valuing the bank at $1.2 billion or 2.3 times book value. Hsinchu was profit making at the time with $12.7 billion of assets and 83 branches.
That deal was followed in April 2007 by the acquisition of Bank of Overseas Chinese by Citi. The US bank paid $427 million, representing around 1.3 times 2007 book value, for the Taiwanese lender, which had assets of $8.5 billion and 55 branches. And earlier this month, ABN AMRO won a government auction to takeover the loss-making Taitung Bank for NT$6.9 billion, gaining 32 branches.
Specialists have been predicting that Taiwan is rife for banking sector consolidation, as it is over banked and recovering from a consumer credit crisis.
Citi was advisor to Longreach on the EnTie transaction. Lehman Brothers and Aexcel Corporate Finance advised EnTie Bank and the Hung Tai Group.
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