KB Financial, a Backup Plan for 'KDB Life'... Concerns Over Overheated Bidding for Prudential Life Acquisition (Comprehensive)

'Prudential Saengmyeong' Missed but Alternative Acquisition Attempts Possible
Speculation of Ongoing Behind-the-Scenes Negotiations with KDB Industrial Bank

[Asia Economy Reporter Kangwook Cho] KB Financial Group, which participated in the acquisition battle for Prudential Life Insurance, is reportedly considering the KDB Life Insurance card as an alternative in case the acquisition fails. This is due to concerns that competition might become overheated as Woori Financial Group is also expected to join the main bidding through a consortium following the Taiwanese Fubon Group. KDB Industrial Bank, which had put KDB Life Insurance up for sale early on, is in a critical situation but intends to observe the main bidding process for Prudential Life Insurance next month. There are also rumors that KB Financial and KDB Industrial Bank are already engaged in behind-the-scenes negotiations regarding KDB Life Insurance.

According to financial circles on the 21st, it is anticipated that Woori Financial will enter the Prudential Life Insurance acquisition battle by partnering with the private equity fund IMM Private Equity (PE). Initially, Woori Financial was considered a strong candidate for acquiring Prudential Life Insurance but did not participate in the preliminary bidding. This was interpreted as a reluctance to engage in the acquisition amid CEO disciplinary actions related to the overseas interest rate-linked derivative-linked fund (DLF) scandal. However, it is now known that Woori Financial is reviewing the option of forming a consortium with IMM PE to participate in the main bidding. Discussions on the acquisition structure, including determining each party’s share ratio for acquiring 100% of Prudential Life Insurance’s shares, are underway. Previously, Woori Bank, a key affiliate of Woori Financial, did not participate in the preliminary bidding for the Lotte Card acquisition last year but made a surprise appearance in the main bidding by forming a consortium with MBK Partners.

From KB Financial’s perspective, the situation is inevitably burdensome. Fubon Group, which participated in the preliminary bidding but gave up on due diligence, recently formed an advisory team with global investment bank UBS and accounting firm Samil PwC and has started due diligence on Prudential Life Insurance. Initially, the industry expected a two-way battle between KB Financial and MBK Partners. However, with Fubon Group emerging as a dark horse and Woori Financial also weighing participation, the situation has become complicated. MBK Partners, disadvantaged by a two-year non-compete agreement with Shinhan Financial Group, submitted the highest price in the preliminary bidding, leveraging its capital strength. As more competitors enter, the acquisition price is likely to rise further.

KB Financial has a precedent of withdrawing from an acquisition battle due to board opposition over high prices, as seen in the ING Life Insurance (now Orange Life) acquisition. In a recent conference call, KB Financial expressed a cautious stance toward acquiring Prudential Life Insurance. KB Financial Chairman Yoon Jong-kyu has repeatedly stated that life insurance M&A is a top priority but has also shown caution against “overpaying.” The current preliminary bid price for Prudential Life Insurance is known to exceed 2 trillion won significantly.

With the late entry of competitors, KB Financial’s calculations have become complicated. The industry expects KDB Life Insurance to be an alternative. Even if KB Financial fails to acquire Prudential Life Insurance, it is unlikely to stop its attempts to acquire a life insurance company. KB Financial’s non-life insurance division generates stable annual operating profits in the billions of won, but its life insurance division’s annual operating profit is less than 30 billion won, making it imperative to actively grow this sector.

KDB Life Insurance recorded a cumulative net profit of 72 billion won as of the end of the third quarter last year. Although this is about half of Prudential Life Insurance’s net profit (146.5 billion won) during the same period, it ranks within the top 10 among 24 life insurers. Its total assets stood at 19.4425 trillion won, comparable to Prudential Life Insurance’s 20.8133 trillion won. However, the solvency margin ratio (RBC) of only 226% is problematic, falling far short of Prudential Life Insurance’s 515%. This has led to three failed sale attempts over the past decade, and the success of the fourth attempt remains uncertain. The price KDB Industrial Bank paid when acquiring it in 2010 was about 650 billion won. The bank has lowered its expected sale price from the initial 600 to 800 billion won range to around 400 billion won, but private equity funds (PEFs) participating in the preliminary bidding that started last November reportedly offered about 200 billion won. If the sale is not completed by the end of March, the bank faces the possibility of converting to a holding company or even paying fines.

Nevertheless, despite the urgency, KDB Industrial Bank intends to observe the Prudential Life Insurance sale negotiations. The bank believes that proper negotiations for the sale of KDB Life Insurance can only proceed after interest in Prudential Life Insurance subsides. For this reason, there are industry speculations that the bank is already conducting behind-the-scenes negotiations with candidates including KB Financial.

An industry insider said, “From KB Financial’s standpoint, acquiring Prudential Life Insurance is crucial, but the soaring prices due to overheated competition are inevitably burdensome. Although KDB Life Insurance is not a particularly attractive asset for KB Financial, if the Industrial Bank offers to absorb some liabilities, the relatively cheaper KDB Life Insurance could become an alternative.”

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