Woori Financial Group’s Insurance M&A Faces Setbacks: ABL Life Weighs Resale and Merger Options

Woori Financial Group's acquisition of Tongyang Life and ABL Life has faced uncertainty after Financial Supervisory Service (FSS) Chief Lee Bok-hyun publicly criticized the legitimacy of the deal.

Woori Financial Group's acquisition of Tongyang Life and ABL Life has faced uncertainty after Financial Supervisory Service (FSS) Chief Lee Bok-hyun publicly criticized the legitimacy of the deal. With the unexpected hurdles delaying the merger and acquisition (M&A) process, Woori Financial is expected to incur additional costs. Meanwhile, ABL Life is considering both resale and merger options as it faces increased pressure to strengthen its capital base.

Recently, Lee Bok-hyun, the head of the Financial Supervisory Service, publicly criticized the legitimacy of Woori Financial Group’s acquisition of Tongyang Life and ABL Life, casting doubt on whether regulatory approval for making these companies its subsidiaries can be obtained within this year. Woori Financial, which has previously been praised for its "smart M&A" strategy, is now facing unexpected obstacles that are likely to increase both tangible and intangible costs due to the delayed deal.

Some experts are even suggesting that the deal could fall through. With the Share Purchase Agreement (SPA) already signed, Woori Financial now faces additional hurdles with an intensified inspection by the financial authorities and a subsequent investigation by the prosecution, making it unlikely for the subsidiaries to be incorporated by the end of this year. As a result, Woori Financial may not be able to include Tongyang Life and ABL Life in its annual earnings report.

ABL Life's urgent need for capital expansion is also a pressing issue. Woori Financial is reportedly considering both a resale and a merger of ABL Life, possibly aiming to mitigate capital pressure through a merger with Tongyang Life. However, if the deal is delayed or fails altogether, it may lead to penalty costs.

The capital adequacy of ABL Life is of particular concern. As of the first quarter of this year, ABL Life’s K-ICS ratio stood at 114.4%, significantly below the financial authorities' recommendation of 150%. To address this issue, Woori Financial needs to expedite the merger with Tongyang Life, whose K-ICS ratio is 174.7%. While Tongyang Life's ratio is not substantially higher, it could help mitigate ABL Life’s weakened capital adequacy to some extent.

If the acquisition is not finalized within this year, Woori Financial may also face penalty costs. Typically, an SPA includes terms guaranteeing the completion of the transaction within a certain period through regulatory approval. If a penalty is incurred, it could lead to allegations of breach of trust at the board level, depending on how discussions were conducted and the specific contractual terms.

Given the ongoing criticism from FSS Chief Lee Bok-hyun, some financial industry insiders already believe that the deal may collapse. Meanwhile, other potential buyers are reportedly eyeing the opportunity to re-acquire Tongyang Life at a lower price, as Woori Financial had valued it conservatively.

Woori Financial Group’s acquisition of Tongyang Life and ABL Life has hit a significant roadblock due to unexpected criticism and regulatory scrutiny. Whether the M&A will be successfully completed or ultimately fall apart remains uncertain, but the outcome will likely have substantial implications for both Woori Financial and the broader insurance industry. The financial world is closely watching Woori Financial's next strategic moves.