CTBC Financial drops bid to acquire Shin Kong Financial

Taipei, Sept. 21 (CNA) CTBC Financial Holding Co. has dropped its bid to acquire Shin Kong Financial Holding Co. after the Financial Supervisory Commission (FSC) repeatedly rejected its plan to make a tender offer for the company.

In a statement filed with the Taiwan Stock Exchange (TWSE), where shares of CTBC Financial are traded, the financial holding company said on Friday that "the company respects the competent authority's decision" to terminate the tender offer plan it submitted to the FSC on Aug. 26.

The decision to withdraw the bid came after a meeting of company board members, CTBC Financial said.

CTBC Financial's withdrawal leaves Taishin Financial Holding Co. the only contender to take over Shin Kong Financial. Taishin Financial and Shin Kong Financial agreed a merger plan on Aug. 22.

On Monday, the FSC, the top financial regulator in Taiwan, rejected CTBC Financial's tender offer plan, saying the company failed to present a comprehensive implementation plan in its application.

On Tuesday, CTBC Financial said it would revise its tender offer plan, which has been described by Taishin Financial as a hostile takeover without approval from Shin Kong Financial, as soon as possible before sending it to a board meeting for approval.

However, Tung Cheng-chang (童政彰), deputy director of the FSC's Banking Bureau on Thursday cited comments made by FSC Vice Chairperson Jean Chiu (邱淑貞) on Monday as saying the commission's rejection was "adamant." Tung added that the rejection aimed to prevent any financial institution from undermining order in the local financial market.

Tung said financial institutions should do their own fiduciary duty when making a material decision, urging them to take into account the interest of the public, their clients, employees and shareholders.

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

To boost its odds in the acquisition competition, Tashin Financial raised its price in a stock swap by about 25 percent on Sept. 11 by 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.

Among the reasons it rejected CTBC Financial's plan, the FSC has said the tender offer included stock as part of its payment for Shin Kong Financial shares, which the commission was concerned would not adequately protect the shareholders of the two companies.

In a takeover without consensus with Shin Kong Financial, the FSC said if CTBC Financial issued new shares as part of its payment for Shin Kong Financial shares, the fluctuations in CTBC Financial's share price could be 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.

Market analysts said the FSC simply does not favor any hostile takeovers in the local financial market.

Taishin Financial and Shin Kong Financial have scheduled their own special general meetings for Oct. 9 to secure approval from their shareholders on the revised merger plan before seeking approval from the FSC.

Both CTBC Financial and Taishin Financial have separately sought approval from the Fair Trade Commission (FTC).

However, as CTBC Financial dropped its bid, FTC Vice Chairman Chen Chih-min (陳志民) said on Friday the company's application will not enter the review process, while he expected the commission to start reviewing the Taishin Financial offer as early as next week as the company has submitted necessary documents to the agency for a review.

According to the FTC, the review of a combination application will take up to 90 days.

The FTC said the Taishin Financial-Shin Kong Financial case is a horizontal combination, so the commission will consider several major aspects, including market concentration, possible collusion in pricing, and the potential of synergies to provide better services to clients.

A horizontal combination is the merger or acquisition of companies in the same industry at the same stage of production or distribution.

According to Taishin Financial, a merger with Shin Kong Financial will raise the assets of Taishin Financial to almost NT$8.29 trillion making it the fourth largest financial holding firm in Taiwan.