Taiwan regulator blocks hostile bank takeover to clear way for rival deal
Taiwan’s financial regulator has blocked a hostile takeover of financial group Shin Kong, clearing the way for it to merge with rival Taishin Financial Holdings in a $16.6bn friendly deal.
The Financial Supervisory Commission’s move to block the hostile bid by Chinatrust, the country’s third-largest financial holding company, came after Taishin’s president warned that it could undermine the banking sector’s ability to support the globalisation of Taiwanese tech companies.
The FSC said on Monday that Chinatrust had failed to show how it would handle potential shareholder battles if its tender offer did not result in the acquisition of a controlling stake and that this raised concerns over the maintenance of order in the financial market.
The commission also said Chinatrust had not been able to demonstrate a thorough understanding of the financial situation of Shin Kong’s life insurance business.
In an earlier interview with the Financial Times, Taishin’s president Welch Lin had called on the regulator to block the Chinatrust bid, saying his group’s agreed merger with Shin Kong was the best way to enable Taiwan’s banks to help technology companies globalise.
“Our overbanking situation is terrible, terrible,” Lin said, pointing to Taiwan’s 37 banks, 21 life insurers and more than 50 securities brokerages in a market of just 23mn people.
“There are now already many Taiwanese companies like [chipmaker] TSMC who are global companies, but our financial institutions are not big enough to go global to support them,” he added.
“So the government should encourage mergers and acquisitions to create a few national champions. And if you want [that], the regulator should not encourage tender offers in replacement of friendly M&A.”
Taishin would acquire 100 per cent of Shin Kong through a share swap under a deal agreed by the two groups last month. A day after their boards approved the merger, Chinatrust offered 30 per cent more per share in a part-cash deal for between 10 and 51 per cent of Shin Kong shares.
To fend off the rival Chinatrust bid, Taishin last week raised its offer by 25 per cent. Driven by gains in Taishin shares since then, the value of the merged entity rose to NT$529.1bn ($16.6bn), Taiwan’s largest-ever financial sector M&A deal.
UBS is advising Taishin, Morgan Stanley is advising Chinatrust and Goldman Sachs is advising Shin Kong.
The battle was the first serious test of 2018 rules allowing hostile takeover bids in Taiwan’s financial sector. Under that law, the financial regulator still needs to vet such unsolicited offers. Chinatrust can only formally make its tender offer to Shin Kong shareholders after the regulator’s approval.
Lin’s comments on the Shin Kong battle highlight the challenge for Taiwan’s financial industry at a time when competition with China has prompted the US and its allies to “reshore” industry, prompting Taiwanese manufacturers to launch an unprecedented global investment and acquisition spree.
The bidding war for Shin Kong had also laid bare the fierce rivalries between the families that still dominate much of Taiwan’s corporate landscape.
Shin Kong and Taishin are controlled by different brothers from the Wu family, one of the country’s wealthiest clans. Chinatrust belongs to one branch of the Koo family, while two other Koo siblings control smaller China Development Financial Holdings and leasing company Chailease.
Taking over Shin Kong would have made Chinatrust Taiwan’s largest financial group. If Taishin’s bid is approved at extraordinary shareholders’ meetings on October 9, it will create a fourth top-tier group almost the size of Chinatrust — a result that Lin argues would be more beneficial for the industry and the corporate sector.
“We will be big enough to more aggressively go overseas,” he said.
Lin said that after a two-year integration period, a merged Taishin Shin Kong Financial Holding would look to set up banking branches in the US and western Europe, expanding beyond Asia for the first time.
The group’s view on China, on the other hand, is turning more conservative. “Taiwan’s overall exposure to China is steadily decreasing, and ours is too,” Lin said.
“China is in a situation of severe economic hardship, and will continue to struggle for at least several years,” he said. Taishin needed to consider those risks when looking at any new loan to Chinese companies, he added. “They may be OK today, but maybe they will no longer be OK three years from now.”