China Merchants Bank (CMB) yesterday announced that it has completed the deal of purchasing 53.12 percent share capital of Wing Lung Bank. After the deal, the CMB owns 123 million Wing Lung shares, representing 53.12 percent of its share capital. Zhang Ting

China Merchants Bank (CMB) has finally secured the long-awaited deal to acquire Hong Kong-based Wing Lung Bank. The mainland's sixth largest lender yesterday announced that it had purchased 53.12 percent share capital of Wing Lung.

After the deal, CMB now owns 123 million Wing Lung shares, representing 53.12 percent of its share capital. The transaction will help CMB make an unconditional offer to purchase the remaining Wing Lung shares from its minority shareholders.

CMB made the buyout bid in the beginning of June with an asking price of HK$156.50 per share. The whole acquisition is estimated to cost about HK$36.3 billion.

The acquisition news boosted Wing Lung shares yesterday and rose 6.23 percent to HK$155.10, while China Merchants Bank dropped 2.77 percent to close at HK$18.22.

The acquisition process was supposed to complete on Aug 15, but it was delayed twice over the past three months.

CMB issued a notice on Sept 14, noting that the bank could not fulfill the acquisition's criteria in full. The deal, therefore, was re-scheduled to be completed on Oct 27.

The delay triggered speculation that the deal will be called off due to the worsening global economy.

Shares of Wing Lung saw significant correction recently with the US financial meltdown, hitting a half-year low to close at HK$129 on Sept 18.

Pundits believed the offering price is substantially overvalued, which is about 2.9 times the book value of Wing Lung at the end of 2007.

Ricky Cheung, executive and vice president of Enlighten Securities and Futures, said that the deal completion might not give CMB an advantage.

"The deal is relatively expensive," he said. "I am also in doubt about its synergy effect given the business scale of Wing Lung is pretty small in Hong Kong."

Cheung also held a bleak outlook for the CMB, saying that its profit will be squeezed by the furious competition on the mainland.

To finance the takeover, CMB raised 30 billion yuan in its biggest bond sale in Sept 4.

CMB's vice-president Li Hao earlier said that the bank's capital adequacy ratio will maintain at 10 percent after the bond issuance.

He also expected Wing Lung to begin contributing to CMB's revenue in the second half.

(HK Edition 10/01/2008 page2)