HSBC Makes Privatization Offer for Hang Seng Bank — Update

By P.R. Venkat

HSBC Holdings plans to take Hang Seng Bank private in a deal that values the Hong Kong lender at US$37.30 billion.

U.K.-based HSBC said the privatization proposal reflects its "strong conviction in Hong Kong's future as a leading global financial center and super-connector between international markets and Mainland China."

HSBC, which owns a 63% stake in Hang Seng Bank, said Thursday that it has made a cash offer of 155.00 Hong Kong dollars, equivalent to US$19.92 per share, to buy shares it doesn't already own in the Hong Kong lender.

HSBC's cash offer to acquire the remaining Hang Seng Bank shares is expected to total about US$13.6 billion.

The offer is a 30% premium to Hang Seng Bank's closing price on Wednesday of HK$119 a share.

Hang Seng Bank shares surged following the news, up 26%, while HSBC's Hong Kong-listed shares dropped 7.2%.

"Of course, HSBC will need to pay a premium, so it likely wouldn't likely be positive in terms of my fair-value estimate for HSBC, but there should be some opportunities for cost synergies," said Michael Makdad, senior equity analyst at Morningstar said.

Makdad said parent-subsidiary double listings are inherently problematic in terms of governance and therefore the privatization offer is a positive and long-overdue move.

HSBC intends to withdraw Hang Seng Bank's listing following the completion of the offer, and said it won't increase the offer price.

The privatization proposal will be financed using HSBC's internal resources, it said.

Established in 1933, Hang Seng Bank is one of Hong Kong's largest domestic banks. The financial institution offers banking and related financial services, as well as insurance, asset management and index compilation businesses.

BofA Securities and Goldman Sachs are acting as financial advisers to HSBC, while Morgan Stanley is the financial adviser for Hang Seng Bank.

Write to P.R. Venkat at venkat.pr@wsj.com