The Financial Supervisory Commission (FSC) yesterday rejected CTBC Financial Holding Co’s (中信金控) bid to acquire Shin Kong Financial Holding Co (新光金控) through a public tender offer and share swap, saying the proposal lacked details and certainty that it would guarantee the interests of shareholders and the financial market’s stability.
The commission made clear its dislike for hostile takeover moves using share swaps because such arrangements would pose volatility to the firms’ share prices.
“CTBC Financial failed to put forth a sound plan to minimize predictable uncertainties,” FSC Deputy Chairwoman Jean Chiu (邱淑貞) told a news conference yesterday evening.
Photo: Wu Hsin-tian, Taipei Times
CTBC Financial last month proposed buying 51 percent of Shin Kong Financial shares on the open market and via a share swap scheme, a day after Taishin Financial Holding Co (台新金控) and Shin Kong Financial made a joint announcement about a merger through full share swap arrangements.
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, Chiu said.
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 capitalization 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 (新光人壽) 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 commission 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.
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