Group 1- Case 6 Write Up

1. How do you think TEMASEK could have used the potential sale
of the ADIRA subsidiary in its negotiations with MUFG?
Consider what you would do as the financial advisors in this
situation?
 Temasek would want to use the sale of ADIRA to increase the sale price of DANAMON
o By changing from minority interest to major interest, Temasek can get a premium
from MUFG.
 Advice to Temasek

2. Incentives and Disincentives from the sale of ADIRA

Incentives

TEMASEK MUFG
Able to secure premiums generated from sale Gain majority interest of ADIRA
of ADIRA upfront
Able to enter Indonesia insurance sector which
was underpenetrated with much potential for
growth
Good reputation for transparency and good
governance

Disincentives

TEMASEK MUFG
Lose a growing business from Indonesia
Insurance Sector

3. Sale of ADIRA
Considerations to be addressed with potential buyers and recommendations to DANAMON on sale
process, structuring transaction and dealing with Stakeholders
4. Valuation
Standalone Valuation of ADIRA Split Between Channels

 Should Capture existing and future value of the channels it utilizes to sell insurance products
 Split among 2 channels: Bank channel: 80%; non-Bank Channel: 20%
 A list of transactions precedents is provided- Selected PT Asuransi Multi Artha Guna Tbk of
P/E= 11.4x due to country, sector and acquired stake
 ADIRA’s earnings, historical growth and book value

Valuation as of FY2018

Book Value of ADIRA = Total Asset – Total Liabilities = 6,348,965- 4,025,821 = 2,323,144

Expressed in MMs Rupiah

Non-Bank Channels Bank Channels

Assumed to represent 20% of Earnings and Assumed to represent 80% of Earnings and
Book Value Book Value
2018 Net Income= 1,939,105 FY2018 Book Value= 2,323,144
Attributed to non-bank channels= 387,821 Attributed to bank channel= 1,858,515
Valuation Approach: P/E Valuation Approach: P/B
 11.4x  Applicable P/B= 1.0x
Valuation= 4,421,157 (~USD$304mil) Valuation= 1,858,515 (~USD$128mil)
Insurance Valuation Excluding Bancassurance= 6,279,672 (~USD$432mil)
Cross Check against P/BV: 1.4X

Book Value = 2,323,144 X 1.4= 3,252,402

Bancassurance Valuation- Using Dividend Discount Model

 Net Present Value of all future dividends using a suitable discount rate (Risk -adjusted)
 Dividends are forecast over a finite horizon and a terminal value is then used to reflect the
value of all remaining dividends to be received beyond the horizon
 Growth rate is smaller than the required rate of return on the stock
 Assume Solvency Ratio = 150% and excess capital will be paid as dividend to shareholders
 Total Required Capital = 150% X Net Written Premium = 150% X 1,939,105= 2,908,658
 Total Required Capital = 150% X Net Written Premium = 150% X 635,755= 953,633

 GDP growth rate of Indonesia from 2018-2019 (from Google)= ~5.02%--> CAGR will likely be
higher than the overall GDP of Indonesia- From Google- annual Dividend Yield = 7.52%
 Quarterly dividend= 151.81IDR= 607.24

Required rate of return (Cost of Equity) = Use Tax rate of 25%

Growth (constant growth rate for dividends in perpetuity) = 5%

Excess Capital= taking the total available cash and related assets (1) and subtracting from it both
the working capital allowance (2) and the margin of compliance (3)

= 2,132,942- 953,633 = 1,179,310

15 Years

25%

2018 2019 2020 2033

D1= 1,179,310 Market Cap 2023=
5,990,552

D1 = 1,179,310

Terminal value after 15 years= EBITDA x Trading Multiple = 525,487 X 11.4 = 5,990,552

Total PV= 5,911,878 (refer to Excel)

20 Years

Total PV= 6,021,100 (refer to Excel)

Perpetual Basis

PV= C/ r-g

PV= 1,179,310/ (25%- 5%)= 5,896,548

Total Value

DDM of Bancassurance + Standalone valuation = 6,279,672 + 5,896,548 = 12,176,220