FSC rejects CTBC Financial's tender offer to acquire Shin Kong Financial

Taipei, Sept. 16 (CNA) Taiwan's Financial Supervisory Commission (FSC) on Monday rejected an application filed by CTBC Financial Holding Co. to launch a tender offer to acquire Shin Kong Financial Holding Co., boosting the odds for Taishin Financial Holding Co. to buy Shin Kong Financial through a merger.

At a press conference, Jean Chiu (邱淑貞), vice chairperson of the FSC, the top financial regulator in Taiwan, said the commission did not agree with CTBC Financial's tender offer as the company had failed to give the FSC a comprehensive plan on how to implement it.

According to Chiu, CTBC Financial planned to acquire a stake of between 10 percent and 51 percent in Shin Kong Financial through a tender offer as an initial stage of its takeover, before taking Shin Kong Financial under its corporate umbrella completely at a later date.

However, Chiu said the FSC found after a review that CTBC Financial did not say in its application how it would deal with every possible scenario through the tender offer, and it also failed to tell the FSC if it could not acquire Shin Kong Financial as it plans, what it would do with the shares it gains during the tender offer process.

Chiu said in its application, CTBC Financial did not have a close grasp of the financial conditions of Shin Kong Financial's life insurance subsidiary and did not come up with a concrete commitment on how to raise the capital size of the subsidiary.

The escalating competition between CTBC Financial and Taishin Financial has drawn much market attention recently, with Taishin Financial labeling CTBC Financial's tender offer as a hostile takeover which was not approved by Shin Kong Financial's board members.

CTBC Financial announced on Aug. 20 its bid to launch a tender offer to acquire Shin Kong Financial before Taishin Financial and Shin Kong Financial held their own board meetings to discuss their merger plan on Aug. 22.

Taishin Financial unveiled for the first time the price in its plan to merge with Shin Kong on Aug. 22 through a stock swap in which Taishin Financial would use 0.6022 common shares in exchange for every one common share of Shin Kong Financial. The stock swap translated into NT$11.32 (US$0.32) per share based on Taishin Financial's closing price on Aug. 22.

On Aug. 23, CTBC Financial announced its tender offer will use a combination of NT$4.09 per share in cash and an exchange ratio of 0.3132 common shares of CTBC Financial for every one common share of Shin Kong Financial. The price of the tender offer stood at NT$14.55 based on CTBC Financial's closing price on Aug. 23.

To compete with CTBC Financial to acquire Shin Kong Financial, Taishin Financial sweetened its price by raising its stock swap ratio on Sept. 11, offering 0.672 common shares, plus 0.175 preferred shares in exchange for one common share of Shin Kong Financial. The revised price translated into NT$14.18 per share, which came closer to CTBC Financial's offer of NT$14.2 per share based on their closing price on Sept. 11.

Chiu said CTBC Financial's tender offer included its stock as part of its payment for Shin Kong Financial shares, which the FSC feared could not well protect shareholders of both companies.

In a takeover without consensus with Shin Kong Financial, Chiu said, if CTBC Financial issues new shares as part of its payment for Shin Kong Financial's shares, the fluctuations of CTBC Financial's share price are expected to result in different acquisition prices, which could create uncertainty in the market during the tender offer process, sending ripples through both sides' share performance, which is the last thing their shareholders want to have.

Therefore, Chiu said, the FSC, in recent years, did not encourage financial institutions to use stocks as a payment in a tender offer.

Since the Regulations Governing Public Tender Offers for Securities of Public Companies was revised in 2002, only six cases used shares as their payments, including two involving securities firms, tender offers of which had targeted a more than 80 percent stake, Chiu said.

The first consolidation in the local financial holding industry involved Fubon Financial Holding Co.'s takeover of Jih Sun Financial Holding Co. was completed in 2023 through a tender offer in the first stage in which Fubon Financial used cash instead of its common shares to acquire a 51 percent stake in Jih Sun Financial, according to Chiu.

Chiu said although the local financial market operates under a free market mechanism, any takeover cannot interrupt market order, and firms in any merger case should respect each other in order to maintain market stability.