Farallon outplayed StanChart to win BCA

The Jakarta Post, Jakarta

It was all too clear who was about to become the new owner of Bank Central Asia (BCA) when State Minister for State Enterprises Laksamana Sukardi said the selection was based on the final bids submitted on Jan. 28.

Laksamana named the consortium led by the San Francisco-based investment firm Farallon Capital Management in a decision that took many by surprise.

"We returned to the final bids that were submitted on Jan. 28," he told reporters explaining the announcement he was about to make.

The government announced on Thursday that Farallon was the winning bidder for a 51 percent stake in BCA worth about Rp 5.3 trillion (approximately US$530 million).

The U.S investment firm teamed up with local cigarette maker PT Djarum, which joined the consortium under Alaerka Investment Ltd.

Farallon's win, beating out long-time favorite Standard Chartered Bank Plc from England and its consortium, marked an unexpected end to the nearly two-year effort to sell BCA to a strategic investor.

Laksamana said Farallon was selected because it had proposed the better bid by the submission deadline of Jan. 28.

Four parties submitted final bids, but only Farallon and StanChart passed Bank Indonesia's so-called fit-and-proper test.

The one-and-half-month wait that followed the submission of the final bids should have been a quiet period for Farallon and Standard Chartered to wait out the end result of their bids.

But soon after the final bids were placed, news reports surfaced that StanChart's bid was inferior to Farallon's.

Although StanChart offered a slightly higher price than Farallon, the bank attached conditions on its sale and purchase agreement (SPA) that were reportedly too burdensome.

Laksamana later said one condition had been to place 15 percent of BCA's sale proceeds into an escrow account from which StanChart would pay any claims raised against it because of BCA.

Another demand, he said, was to defer payment on the second 21 percent installment to Dec. 31.

Laksamana was quick to add that StanChart did improve its bid. However, he opted to reject the revised bid "for the sake of the bidding process' credibility".

When news hit that StanChart's demands were considered burdensome, the Indonesian Bank Restructuring Agency (IBRA) offered all parties a chance to revise their bids, claiming that this was part of the bidding process.

This prompted Farallon to charge that final bids should remain final and that changing them was tantamount to manipulation.

StanChart and IBRA argued that every bidder had the same opportunity to revise their bids.

Farallon threatened to pull out from the process, a threat that was met with skepticism by IBRA chief I Putu Gede Ary Suta, who called it a strategy to discredit StanChart through the media.

Nonetheless it raised questions about IBRA's bidding process, and the government took charge in the final week of the sale process.

Laksamana said the government stepped in to ensure the credibility of the sale's outcome by having the winner selected on a ministerial level.

Also working to Farallon's advantage was the mass demonstration by BCA employees opposed to the sale.

The employees main concern was the prospect of mass layoffs. But their fears were mainly focused on the prospect of BCA being taken over by StanChart, whose earlier attempt to acquire Bank Bali ran aground due to employees rejecting foreign management.

The protest by BCA employees resulted in the government delaying the announcement of the bid winner, as it sought assurances from StanChart that it would not lay off employees.

Farallon was largely left out of the spotlight and its representative here was reportedly in London, leaving only a team of lawyers and its spokespersons in Jakarta.