Bloomberg News

Sumitomo Mitsui Unveils $2.6 Billion Buyout Plan for Promise

September 30, 2011

Sept. 30 (Bloomberg) -- Sumitomo Mitsui Financial Group Inc. said it will buy out Promise Co. for about 200 billion yen ($2.6 billion), betting that Japan’s second-biggest consumer lender will recover under the bank’s umbrella.

The country’s second-biggest bank by market value, which owns 21 percent of Promise, will buy existing stock through a tender offer and new shares by the end of the year, Sumitomo Mitsui said in a statement to the Tokyo Stock Exchange today.

The buyout deal comes as Japanese consumer lenders struggle to survive after a five-year regulatory crackdown forced them to cut loan rates and refund overcharged interest. Promise said it expects to post a 208 billion yen loss for the six months that ended today, citing a “persistently severe” business environment.

“Making Promise wholly owned would confirm that Sumitomo Mitsui is fully committed to the consumer-lending business,” Yoshinobu Yamada, a Tokyo-based analyst at Deutsche Bank AG, said before today’s announcement. “Given that the local consumer-loan market’s been shrinking, Sumitomo Mitsui may be looking at other emerging markets for future growth.”

Sumitomo Mitsui offered to pay 88.8 billion yen for Promise shares outstanding. That’s 780 yen apiece, an 18 percent premium on today’s closing price of 659 yen. It will also spend about 120 billion yen buying new shares, the statement said.

Shares Gain

Promise shares surged 18 percent today after newspaper reports of the takeover. Competitors Acom Co. and Aiful Corp. also gained as the deal spurred speculation that Japan’s consumer finance industry will survive the crackdown. The three companies posted losses last fiscal year and Takefuji Corp. went bankrupt after law changes went into effect that restricted lending and triggered interest refunds.

Bigger rival Acom rose 2 percent to close at 1,500 yen on the Tokyo bourse after climbing as much as 16 percent. Aiful, the third largest, closed 7.6 percent higher at 113 yen, after earlier soaring as much as 27 percent.

Financial Services Minister Shozaburo Jimi indicated support for banks increasing ties with consumer lenders, while refraining from commenting on specific deals.

“The consumer finance industry is a 10 trillion yen market and has social significance,” Jimi said at a news conference in Tokyo before the announcement. “I look forward to the creation of a healthy market through cooperation among banks and consumer finance firms.”

Mitsubishi UFJ Backing

Mitsubishi UFJ Financial Group Inc. is Acom’s biggest shareholder with a 37 percent stake. Aiful doesn’t have backing from a major Japanese banking group.

Consumer finance companies were forced to reduce interest rates to a maximum 20 percent from as much as 29 percent under the law introduced last year, reducing profit on loans.

Promise’s net interest margin shrank to 13.7 percent in the year ended March, the lowest since Bloomberg began compiling data in 1995. Acom’s slid to 15.5 percent, the smallest in at least 11 years.

Loans outstanding at Promise declined to 920 billion yen as of March 31, the lowest fiscal year-end balance since 1997, Bloomberg data show. At Acom, loans tumbled to 1.1 trillion yen, compared with the 2 trillion yen peak in March 2003.

While loans are declining, so is the number of customer claims for refunds of excess interest.

Promise’s claims fell to 8,900 in August after climbing to 16,400 in March, Hiroshi Takada, a company spokesman in Tokyo, said this month. Acom’s dropped to 7,500 in August from 16,500 in February, said Takashi Kiribuchi, a Tokyo-based spokesman.

Goldman Sachs Group Inc. advised Sumitomo Mitsui on the takeover, according to today’s statement.

--With assistance from Shingo Kawamoto, Takako Taniguchi and Go Onomitsu in Tokyo. Editors: Russell Ward, James Gunsalus

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Takahiko Hyuga in Tokyo at thyuga@bloomberg.net.

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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