BANGKOK (Reuters) - Thanachart Bank, 49 percent owned by Canada"s Bank of Nova Scotia (BNS.TO), has agreed to pay $1 billion for a 47.6 percent stake in Siam City Bank SCIB.BK in Thailand"s biggest acquisition in four years.
Thanachart said it would tender for the remaining shares it does not own in Thailand"s seventh-biggest lender at the same price it paid for the stake from the central bank, which would value the whole of Siam City at 68 billion baht ($2.1 billion).
Scotiabank will merge Thanachart Bank with Siam City Bank to create the country"s fifth-largest lender in terms of assets and branches, competing with Bank of Ayudhya BAY.BK, which is one-third owned by General Electric"s (GE.N) finance unit.
The takeover would help Canada"s third-largest lender expand its foothold in Thailand"s retail banking business.
"Thailand is exactly the type of market we like to invest in. It"s also a strong growth platform to continue to develop our international platform for further expansion," Rob Pitfield, Scotiabank"s head of international banking, said on a conference call with analysts.
Pitfield said Siam City"s operations are highly complementary to Thanachart"s, with limited business and branch overlap. The merged bank"s portfolio will be almost evenly split between retail and commercial business.
The combined bank will have more than 660 branches and 18,000 employees.
"We chose the best price first, followed by best conditions," said Tongurai Limpiti, assistant governor in charge of the central bank"s rescue arm, which owns the SCIB stake.
Thanachart, which is also 51 percent owned by Thanachart Capital TCAP.BK, had bid against HSBC Holdings (HSBA.L) after state-owned Korea Development Bank pulled out of the competition last month.
The race for the stake in the Thai lender -- the biggest that the central bank has up for sale -- highlighted the allure of Southeast Asia as the global banking industry seeks new sources of funding and Thailand"s economy rebounds.
BILLION DOLLAR DEAL
Thanachart, which will raise funds via shares and bond issues to finance the purchase, will pay the central bank 32.50 baht per share, valuing the deal at around 32.7 billion baht ($1 billion).
The price was 1.6 times Siam City Bank"s book value of 20 baht a share at the end of December.
That was similar to the 1.5-1.6 times book value that ING (ING.AS) paid for 30 percent of Thailand"s sixth-largest lender, TMB Bank TMB.BK, in November 2007, but below the 2.3 times that Malaysia"s CIMB paid for a stake in CIMB Thai Bank CIMBT.BK in June 2008.
Scotiabank would still own 49 percent in the newly merged bank, to be known as Thanachart Bank.
"As part of the financing for this transaction, Scotiabank and Thanachart Capital would subscribe on a pro rata basis to additional shares in Thanachart Bank with Scotiabank contributing about C$650 million ($634 million) in capital to the bank," it said in a statement.
The tender offer will start in April and the merger process, which could result in the delisting of Siam City Bank, is expected to be completed by the end of 2011.
Shares of Siam City Bank and Thanachart Capital were suspended on Thursday afternoon at their request pending the announcement.
Before the suspension, Siam City Bank shares were up 1.6 percent at a six-week high of 31 baht and Thanachart Capital had risen 2.4 percent to 21.20 baht.
The SCIB stake was offered by the Financial Institutions Development Fund (FIDF), the central bank"s rescue arm, set up after several financial firms collapsed in the 1997-98 Asian financial crisis.
($1=32.65 Baht)
($1=$1.025 Canadian)
(Writing Khettiya Jittapong; Additional reporting by Andrea Hopkins in Toronto; Editing by Alan Raybould)
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