Buy now, price it later

Global Finance, May 1998 by Lanchner, David

Bruno Schricke, ABN AMRO's French-born manager in Thailand: His knowledge of fine wines helped him cut the deal.

Though Thailand has flung open the door to foreign acquisitions of its troubled banks, buyers still have a problem: How do you value a bank in the midst of a financial crisis, when the currency is still vulnerable, interest rates are skittish, and opaque accounting obscures how bad the bank's loan portfolio really is?

That conundrum has already defeated efforts by Citibank, ING, Standard Chartered, and HongkongBank to acquire one of Thailand's 15 licensed banks. But now Dutch bank ABN AMRO appears to have found a neat solution: In mid-March it agreed to purchase Thailand's Bank of Asia, the country's 1I th largest, in a "buy now, price it later" arrangement rarely seen since the Latin American debt crisis of the 1980s.

It's a clever maneuver that other cross-border acquirers of desperate companies ought to study. Initially, ABN AMRO will pay 7.5 billion baht ($185 million) to acquire 75% of Bank of Asia. That works out to 5.27 baht per share, versus a market price of 20.25 baht when the deal was announced. At yearend 1999-when, presumably, the crisis will be over-the Bank of Asia's net asset value per share will be determined by an independent auditor and multiplied by the average price-tobook value of six unnamed Thai banks. The minimum price ABN AMRO can pay is its initial outlay, while the maximum price has been capped at 39 billion baht.

"It's an ingenious and practical solution to a real problem," says Foo Tien-Ong, head of research at Merrill Lynch in Bangkok. And "it has given ABN AMRO one of the few jewels of the Thai banking sector."

The formula was proposed by Michael Drabbe, who heads ABN AMRO's international operations in Amsterdam.

But the one who successfully cut the deal was Bruno Schricke, ABN AMRO's French-born country manager in Thailand. "When we began negotiations with Bank of Asia in late October, we very quickly realized that setting a specific price would be impossible," says Schricke, one of the few foreign managers in Bangkok who speaks Thai. "The gap between their expectations and what we were willing to pay was too great."

Conservatively run Bank of Asia is the only Thai bank whose controlling shareholders-the Chinese-Thai Phatraprasit family-have stayed out of active management. "The perennial catch in Far East acquisitions is an Asian owner who does not want to give up management power," Schricke notes. But that very characteristic led several other foreign banks to open neotiations with Bank of Asia, too. What carried the day was ABN AMRO's willingness to stick with existing managers. Bank of Asia president Chulakor Singhakowin. a Wharton grad elected Banker of the Year by the Thai financial press in 1997, put tother the only board in the Thai banking sector (and one of only a few in the entire Asian corporate world) composed of both locals and Westerners.

Schricke and Chulakom hit it off partly because both love fine wines. The Frenchman assured Chulakom that the Bank's Thai identity would remain intact, while its trade finance, treasury, investment banking, and structured finance-as well as loans to major Thai companies operating internationally-would benefit from the ABN AMRO link. Other pluses: the Dutch bank's 35% stake in Thailand's largest stock broker, Asia Securities, its application to sell insurance in Thailand, and its retail presence in such other Southeast Asian markets as Taiwan.