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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

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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) :

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LIPPO BANK

MILESTONE

Bank Lippo’s journey started in March 11th ,1948 and listed in November

10th,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 road-

map. 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

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NIAGA BANK

MILESTONE

Bank Niaga was established on September 26th ,1955 and listed in November

29th,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

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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


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an inorganic growth strategy. Bank CIMB Niaga combines the best of Bank

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platform.

Source : (http://www.cimb.com/pdf/IR/Merger%20Report%20(6-7-09).pdf)

MERGER’S MECHANICS


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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


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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.


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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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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

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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


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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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