Align Partners Proposes A Merger Between JB Financial and BNK Financial
On 14 July, Align Partners sent open letters to the BODs of Jb Financial Group and Bnk Financial Group proposing a merger of the two companies.
Align Partners highlighted recent mergers among regional banks in Japan in the past several years as benchmarks.
I have a positive view on such a merger. Nonetheless, I think the probability of this merger occurring in the next 1-2 years is less than 20%.
On 14 July, Align Partners (a leading corporate activist investment firm in Korea) sent open letters to the BODs of Jb Financial Group (175330 KS) (market cap of 5.1 trillion won) and Bnk Financial Group (138930 KS) (market cap of 5.6 trillion won) proposing a merger of the two companies which both provide regional banking/financial services in Korea. Align Partners is the second-largest shareholder of JB Financial, holding a 14.8% stake, and also holds approximately 1% of BNK Financial.
In the open letter to the BOD of these two companies, Align Partners demanded the following:
1) Establish a special committee composed of independent directors.
2) Appoint an advisory firm to review the strategic and financial feasibility of a merger.
3) Disclose whether they have initiated a feasibility review by 7 August and, if so, release the results and implementation plans by the date of their third-quarter earnings announcements.
Significant synergies from this merger - According to Align Partners, this merger would create significant synergies. Upon merger, the combined market capitalization would reach 10.3 trillion won (comparable to that of KakaoBank - 10.9 trillion won) and could expand to as much as 20.3 trillion won if the average P/E ratio (9.4x) of the four major commercial banks is applied.
According to Align Partners, the combined companies could benefit from improvements in Return on Risk-Weighted Assets (RoRWA), the elimination of redundant costs, and IT system efficiencies.
In addition, because JB Financial Group and BNK Financial Group operate in distinct core regions (Honam and Yeongnam, respectively) there is virtually no risk of cannibalization, such as overlapping branches or customer bases, resulting from the merger.
Comparison to Recent Regional Bank Mergers in Japan - Align Partners also highlighted the recent mergers among regional banks in Japan in the past several years.
Last year, Chiba Bank and Chiba Kogyo Bank (the top and third-largest banks in Chiba Prefecture, respectively) announced plans to merge.
Additionally, Aichi FG (the second-largest in Aichi Prefecture) and Sanju San FG (the second-largest in Mie Prefecture) reached a basic agreement to merge this past May.
According to Align Partners, the Japanese government has encouraged the consolidation of regional banks while easing regulations, a move aimed at preventing financial instability through proactive integration.
An activist fund named Ariake Capital played a role in recent bank merger cases in Japan.
