DBS in $4.9bn Bank Danamon deal as it seeks expansion

DBS Group Holdings Ltd has agreed to buy a controlling stake in Indonesia's Bank Danamon in a deal worth 45.2tn Indonesian rupiah ($4.9bn; £3bn).

DBS will acquire a 67.4% stake held by Temasek Holdings, a move that is likely to help it tap into the Southeast Asia's largest economy.

The deal comes as Indonesia's economy has been growing at its fastest pace since the Asian financial crisis.

Indonesia's economy expanded by 6.5% in 2011, the highest rate since 1996.

DBS said in a statement that Indonesia's banking sector "remains underserved and continues to benefit from a growing middle class, rapidly rising domestic consumption and increasing trade flows within the region".

"This offers significant market opportunities across banking products and customer segments, making Danamon's universal banking platform well suited to tap into the Indonesian growth story."

DBS will launch a mandatory cash offer for the remaining Danamon shares it does not own upon completion of the current deal.

The Singapore based bank said it was planning to offer 7,000 Indonesian rupiah per share. That is a premium of more than 56% on Danamon's average price over the past one month.

Danamon has 3,000 branches and offices and a customer base of almost 6 million. The bank has a presence in micro finance, auto lending, small and medium enterprises and retail segments.

Analysts said while Danamon was an attractive investment, DBS will have to justify the price to its shareholders.

"DBS has to explain and illustrate the synergistic value it will gain for paying such a premium," said Roger Tan, chief executive of SIAS Research, the research arm of the Securities Investors Association of Singapore.

"Though this step will take DBS one more step further in building a regional bank, they will have to show that their strategy is adding value to shareholders."