CHAPTER 1 INTRODUCTION

CHAPTER 1 INTRODUCTION 1.1 BACKGROUND The purpose of this thesis is to compare CIMB NIAGA s financial performance before and after merger. The thesis objective would be to observe the financial performance before and after merger process with right techniques Scope This thesis will cover several key points as mentioned below: 1. Data that will be used is data of NIAGA Bank and LIPPO Bank which is doing the merger and acquisitions process. Selected data for this thesis is stock price, Stocks Index and financial statements of companies. 2. Object of research is companies will be LIPPO Bank, NIAGA Bank and CIMB Niaga Bank 3. CIMB Niaga Bank s financial performance is measured using Economic Value Added (EVA) and Tobin s Q ratio. Using sample LIPPO Bank and NIAGA Bank listed in Jakarta Stock Exchange and research period of 2005-2009.We use paired sample t-test for research analysis. It is expected that the 1

2 empirical result from paired sample t-test will shows that CIMB s financial performance after merger will be better the before and vice versa. 1.2 PROBLEM STATEMENT The issue that will be covered in this thesis would be the difference of financial performance before and after merger process using EVA and Tobin s Q will be better after merger and vice versa remembering a crisis situation from mid 2007 until 2008 in Indonesia that impact from global crisis.that crisis might influence financial performance for every company. 1.3 RESEARCH BENEFITS The benefit that is expected from this thesis is to give a guidance for the management to pays attention to financial activity and market share as one of financial measurement in taking care of capital structure and company competitiveness so that can create added value for company and can give more yield that is enough for shareholder or investor 1.4. COMPANY PROFILE Based on CIMB Niaga Bank s Merger Process and Achievement Report-January 2009 (http://www.cimb.com/pdf/ir/merger%20report%20(6-7-09).pdf) :

3 LIPPO BANK MILESTONE Bank Lippo s journey started in March 11 th,1948 and listed in November 10 th,1989. After a successful merger with PT Bank Umum Asia, Bank Lippo went public and was listed on the Stock Exchange in November 1989. Its market capitalization is Rp.7,946,980,203,450 with amount of listed share are 3,876,575,709shares.The Government of Indonesia acquired a majority shareholding in Bank Lippo after the recapitalisation programme was executed on 28 May 1999. On 30 September 2005, having obtained approval from Bank Indonesia, Khazanah Nasional Berhad acquired majority ownership in the bank. Since then, Bank Lippo has moved quickly to design and implement a new roadmap. The road-map provides Bank Lippo with the tools to meet the rigours of a world-class bank. Bank Lippo is now a leading private bank in Indonesia, providing quality services and products. Staffed by almost 5,000 employees, it has 401 branches and offices and 722 ATMs across Indonesia. It provides services in more than 120 cities in Indonesia. Bank Lippo pioneered E-Banking services in Indonesia. SHAREHOLDERS COMPOSITION Source : http://www.idx.co.id/jsx.old/issuers.asp?cmd=detail&id=lpbn

4 STOCK S HISTORY Source : http://www.idx.co.id/jsx.old/issuers.asp?cmd=detail&id=lpbn Source : http://www.idx.co.id/jsx.old/issuers.asp?cmd=detail&id=lpbn Source : http://www.idx.co.id/jsx.old/issuers.asp?cmd=detail&id=lpbn

5 NIAGA BANK MILESTONE Bank Niaga was established on September 26 th,1955 and listed in November 29 th,1989. It is currently the seventh largest bank in Indonesia by assets, and has the second largest position in mortgage lending with around 9-10% market share. Its market capitalization is Rp.16,349,905,365,870 with amount of listed shares are 23,695,515,023shares. The majority of the Bank s equity has been held by Bumiputra-Commerce Holdings Berhad (BCHB) since 25 November 2002 and on 16 August 2007 was transferred to CIMB Group, a wholly owned subsidiary of BCHB. As the first local bank to introduce ATM services in 1987 and also an on-line banking system in 1991, Bank Niaga is well regarded as one of the most innovative banks in Indonesia. It offers a comprehensive suite of conventional and Islamic banking products and services, from 256 branches in 48 cities in Indonesia. Bank Niaga has over 6,000 employees.over the years, Bank Niaga has been well regarded for its track record in customer service excellence and corporate governance, and also one of the sources of high quality bankers in Indonesia. Through the extensive branch offices and ATM network, as well as its wide range of sophisticated electronic channels, Bank Niaga offers a highly personalised banking experience to its customers. Amongst its accolades, in 2007 Bank Niaga was ranked 1st for Performance Management and Training and Development in The HR Excellence Award 2007 and also awarded Best Bank by the Investor Magazine. In 2006 it was awarded The Most Consistent Bank in

6 Service Excellence by the Marketing Research Indonesia. For five consecutive years, since 2003 2007, Bank Niaga had been awarded The Best Annual Report in category Private Financial Listed Companies. SHAREHOLDERS COMPOSITION Source: http://www.idx.co.id/jsx.old/issuers.asp?cmd=detail&id=bnga STOCK S HISTORY Source: http://www.idx.co.id/jsx.old/issuers.asp?cmd=detail&id=bnga

Source: http://www.idx.co.id/jsx.old/issuers.asp?cmd=detail&id=bnga 7

8 1.4. RATIONALE BEHIND MERGER Surveying the Indonesian banking landscape Figure 1 : Indonesia bank universe, ranked by assets

9 Indonesian Banking Architecturee & Single Presence Policy Figure 2: Indonesian Banking Architecture Khazanah is the Controlling Shareholder of Bank Niaga and Bank Lippo. As a long term strategic investor, Khazanah has continued to convey its intention and commitmentt to actively participate and contribute to the long-term economic development of the Republic of Indonesia, particularly in the financial and banking sector. Furthermore both Bank Niaga, as a part of CIMB Group, and Bank Lippo have each resolved and stated on various occasions, the vision and mission to be one of the top 5 banks in Indonesia and to achieve various growth and profitability milestones by 2010. To achieve this goal, both banks have individually and aggressively focused on innovating new product lines and penetrating untapped customer segments for organic business expansion, while simultaneously seeking potential merger and acquisition opportunities as part of

10 an inorganic growth strategy. Bank CIMB Niaga combines the best of Bank Niaga and Bank Lippo, enhanced by scale synergies and CIMB Group s regional platform. MERGER S MECHANICS

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12 CIMB Group Background & Profile CIMB is the second largest banking group in Malaysia, and fifth largest in South East Asia by total assets/ Core strengths of CIMB are in investment banking,asset management, Islamic investment banking and consumer banking Vision To Be South East Asia s Most Valued Universal Banking Broad objectives and targets - Top 3 bank in SEA by assets - Integrated ASEAN universal bank Universal banking proposition in place in Malaysia, Indonesia, and Singapore

13 The Niaga-Lippo merger is grounded on a strong strategic rationale Bank Niaga and Bank Lippo represent two unique franchises and when combined, represent one of the more exciting banking sector propositions for the country. The merger takes advantage of Bank Niaga s strong corporate presence and mortgage niche together with Bank Lippo s leadership in SME loan and payment processing system. By combining the strengths of both banks, the merger will result in a bank well positioned to compete and grow in the increasingly competitive Indonesian banking environment.

14 FINANCIAL SCALABILITY Bank CIMB Niaga will be bigger and stronger in total assets, loans, and customers deposits. The resulting economies of scale will enable us to serv our customers better with superior products, prices and service standards.

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17 Number of Branches and Market Share There is a positive correlation between number of branches and deposit and loan shares. BANK CIMB NIAGA SHAREHOLDER S AFTER MERGER Source : PT.CIMB Niaga Bank Tbk and Subsidiaries - Consolidation Financial Statement, 31 December 2009,2008 and 2007

18 Based on report No. UB-191/Dir.060/V/2008-I dated 25 May 2008 issued by PT Ujatek Baru, for share conversion purposes, management decided that the fair value of the net assets of Bank CIMB Niaga and Bank Lippo were Rp1,052 (full amount) and Rp2,969 (full amount) per share, respectively. Based on this valuation, each holder of 1 class A and B shares of Bank Lippo received 2.82 (rounded) of class B shares of Bank CIMB Niaga. This valuation represents the fair value of each bank and also gives a premium above the historical traded prices. Complementary Products and Capabilities Factor

19 The merger enables us to broaden and strengthen our product range. Bank CIMB Niaga will combine Bank Niaga s strong corporate lending presence, and mortgage niche together with Bank Lippo s leadership in SME loans and the payment processing system which offers attractive growth opportunities. Over the years Consumer and SME segments have driven a strong growth in lending activities. After the merger, Bank CIMB Niaga will also leverage on its strength in these areas to grow its business.

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