Prudential to sell Korean unit to KB Financial for $1.9 bn

Prudential Financial Inc. has decided to sell its South Korean insurance arm to KB Financial Group for about 2.3 trillion won ($1.9 billion) and will sign an agreement with the Korean banking giant on April 10, according to sources with knowledge of the matter.

KB Financial’s final bid of around 2.3 trillion won is 100 billion won less than the highest bid among the three shortlisted bidders which included two Seoul-based private equity firms MBK Partners and Hahn & Company.

Taiwan’s Fubon Financial Holdings has not participated in the final bidding round.

After the March 19 deadline, the sale manager Goldman Sachs allowed the three final bidders to sweeten their bids in a so-called progressive deal in an effort to raise the price tag.

KB Financial, which had made the highest bid in the preliminary round, slightly revised down its offer to be equivalent to 0.8 times net asset value of Prudential Life Insurance Co. of Korea.

In contrast, the two private equity firms increased their bids. But the gap between the bidding prices remained narrow, according to the sources.

As the only strategic investor in the auction, KB is believed to have the ability to finance the deal with its own capital. It also has delivered its determination to a swift deal closing in messages, after the coronavirus outbreak forced Prudential to shift its focus toward completing the sale quickly.

US-based Prudential Financial Inc. put 100% of the South Korean insurance arm on the market in late 2019 to shed part of overseas assets.

Prudential and KB Financial will finalize the deal after their board meetings later on April 10, the sources said.

LITTLE IMPACT OF COVID-19

The life insurance industry is grappling with historically low interest rates in the aftermath of the Covid-19 outbreak. The introduction of the international financial reporting standards (IFRS17) was deferred to January, 2023.

Despite the sharp falls in share prices of life insurers and concerns about their declining profit margins, the sale price of Prudential Life was not sharply lowered from earlier estimates.

Its risk-based capital ratio, a measure of financial strength, stood at 515% at the end of September 2019, the highest in the sector and over 1.5 times more than the industry average.

For KB Financial, the acquisition is expected to help bolster its relatively weak life insurance business and overtake bigger domestic rival Shinhan Financial Group.

Shinhan acquired Orange Life Insurance Co. Ltd., formerly known as ING Life, from MBK Partners for 2.3 trillion won in 2018.

Prudential Life, with assets of 21 trillion won, is ranked 11th among the 24 life insurers operating in South Korea.

The combination of KB Financial’s existing life insurance operation with Prudential Life will make it the ninth-largest player in the country with assets of 30 trillion won.

But the tie-up raises a question about whether the combined entity will be able to maintain the profitability and efficiency they have at the time of the acquisition, said NH Investment & Securities analyst Boram Cho.

“Creation of synergy effects will depend entirely on their management strategy,” the analyst said.

KB Financial is planning to beef up cooperation between affiliated companies to maximize synergy effects.

“We will take this acquisition as a momentum to make new profits … and solidify our position as a leading financial services company,” a KB Financial Group source told the Korean Investors.

Write to Sang Eun Lee and Soram Jung at selee@hankyung.com


(Updated on April 14, 2020 to amend 2nd and 5th-7th pargraphs. KB Financial's final bid was the second highest among the three shortlisted bidders and it slightly revised down its final offer after the deadline.)