Taiwan’s Regulator Blocks CTBC’s $1.4 Billion Takeover Bid

Taiwan’s Financial Supervisory Commission (FSC) has rejected CTBC Financial Holding Co’s bid to acquire Shin Kong Financial Holding Co for $4.1 billion through a public tender offer and share swap.

According to FSC, the proposal lacked details and certainty that it would guarantee the interests of shareholders and the financial market’s stability.

The merger would have created the country’s biggest financial group. The commission made clear its dislike for hostile takeover moves using share swaps because such arrangements would pose volatility to the firms’ share prices, according to a report in Taiwan’s English daily Taipei Times.

Addressing a media conference, FSC Deputy Chairwoman Jean Chiu said that CTBC Financial failed to put forth a sound plan to minimise predictable uncertainties.

CTBC Financial last month proposed buying 51% of Shin Kong Financial shares on the open market and via a share swap scheme, a day after Taishin Financial Holding Co and Shin Kong Financial made a joint announcement about a merger through full share swap arrangements.

No Mentions

“CTBC Financial also failed to address how it would fund the public tender offer or how it would handle Shin Kong Financial shares if the buyout falls through. In addition, CTBC Financial failed to commit to capital increases for Shin Kong Financial’s life insurance arm,” she said.

Financial conglomerates have a large market capitalisation and should approach mergers and acquisitions with professional judgment and in a respectful manner, Chiu said, adding that CTBC Financial demonstrated a lack of understanding about Shin Kong Life Insurance Co’s financial health. Cash-strained Shin Kong Life is the flagship unit of Shin Kong Financial.

Of the 195 mergers and acquisitions since 2002, only six attempts carried through using share swaps, Chiu said.

“The commission has never approved the use of share swaps to purchase banks or life insurance companies because such schemes create volatility in mutual share prices and the financial market,” she said.

The case is different for merger attempts because they should have won approval from bilateral board directors and attained the go-ahead from respective shareholders, she said.

CTBC Financial unveiled its buyout plan after board directors at Taishin Financial and Shin Kong Financial reached a merger agreement and discussed the matter for a long time, the report, citing FSC said.

The commission said it is disappointed about the ongoing verbal attacks between CTBC Financial and Taishin Financial.

However, the commission said it does not favor merger bids over hostile takeover attempts, rather it assigns great importance to cash when reviewing hostile takeover bids.

In the past, tender bid initiators largely set their buyout target at 80 percent to diminish management right disputes and ensure smooth operations, Chiu said.

Taishin Financial and Shin Kong Financial next have to remove resistance from their shareholders before they put their case to regulatory review, the commission said, according to the report.