(Bloomberg) -- CTBC Financial Holding Co., fighting a takeover battle for Shin Kong Financial Holding Co. to create Taiwan’s biggest finance group, pledged to avoid any job cuts within three years if the deal is approved.
CTBC has had positive talks with the Financial Supervisory Commission and expects to be allowed to proceed with its hostile bid, President Rachael Kao said in an interview late Thursday. Normally, regulators only require a guarantee of no job cuts for two years following any deal.
“We have a degree of certainty” that the FSC will approve the bid, Kao said. CTBC told regulators of its intentions before it held a board meeting on the takeover, and hasn’t had any “bad news” so far, she added.
The roughly $4.1 billion cash and stock offer for a 51% stake has shaken up the island’s financial industry, as Shin Kong has agreed to a friendly merger with Taishin Financial Holding Co., a firm started by the brother of Shin Kong’s founder. The deal has also rattled investors in CTBC, and at least five analysts cut their recommendation on the stock last week.
Shin Kong had an uneven financial performance during the pandemic, but swung to a first-half profit of NT$20.5 billion ($638 million) from a loss a year earlier. And while the company was earlier this year reprimanded after its life insurance unit’s capital ratio fell below the 200% minimum, that has since rebounded.
“There is some misunderstanding” of Shin Kong’s situation, Kao said. “Their agents are three times more productive than our agents.”
If CTBC can get 51% of Shin Kong, it would look at buying the rest through cash or a share swap, or both, while loans or the sale of convertible bonds are also under consideration, Kao said.
Taishin meanwhile has said it could adjust its share-swap ratio to sweeten the bid. CTBC offered NT$14.55 in cash and stock for control of Shin Kong, compared with Taishin’s offer worth NT$11.32 a share for 100% of the company in late August.
Shin Kong President Stephen Chen on Tuesday affirmed the group’s preference for a tie-up with Taishin, which has pushed the regulator to prioritize its friendly deal, claiming a hostile takeover could impact industry stability. Taishin has also reportedly pledged no job cuts for three years.
The battle has heated up in the past two weeks as both potential buyers have claimed their plans are better for Shin Kong shareholders. There have also been multiple unsourced media reports carrying “insights” taking one side or the other.
CTBC shares have slid almost 8% since it announced plans to bid on Aug. 20, while Taishin’s stock has dropped about 3%. Shin Kong shares have gained about 17% since news of a potential merger began to circulate in the market.
CTBC, which saw first-half earnings jump 29% to a record NT$37.2 billion, wants Shin Kong to help it grow regionally. A successful deal would see it leapfrog Cathay Financial Holding Co. and Fubon Financial Holding Co. to be the island’s biggest such group.
The group needs to wait for approval to bid from the FSC, which has said it will rule on CTBC’s request by Sept. 16. Shin Kong shareholders will meanwhile vote on the Taishin deal on Oct. 9. Taiwan’s Fair Trade Commission also needs to approve any deal.
Who wins matters, according to Bloomberg Intelligence.
CTBC’s plan “has much bigger ramifications for Taiwan’s financial industry than a Shin Kong and Taishin tie-up,” industry analyst Steven Lam said in an Aug. 26 note. He estimated that CTBC would be the island’s biggest bank by loans and its second-biggest life insurer by assets if it buys Shin Kong.
CTBC has takeover experience, buying Taiwan Life Insurance Co. in 2015 and helping the business return to profit. Kao predicted a capital ratio of 250% if the Shin Kong and CTBC life insurance units merge.
She added the process of absorbing Shin Kong might take three to four years, during which the firm won’t propose any other deals.
“If this merger is not finished, it will be difficult for us to convince our shareholders to let us do another,” she said.
--With assistance from Betty Hou.
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