Block hostile Taiwan bank takeover for sector’s sake, says rival bidder

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The ability of Taiwan’s banking sector to support the globalisation of the country’s powerful tech companies could depend on the outcome of its largest-ever financial sector takeover battle, according to one of the bidders.

Welch Lin, president of Taishin Financial Holdings, called on Taiwan’s sector regulator to block a hostile tender offer by larger rival Chinatrust that threatens to derail his group’s NT$481bn ($15.06bn) agreed merger with financial conglomerate Shin Kong.

“Our overbanking situation is terrible, terrible,” Lin said in an interview with the Financial Times, 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. But 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.

The battle marks 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. The Financial Supervisory Commission has said it will decide by September 24.

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 has 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.

To fend off the rival Chinatrust bid, Taishin on Wednesday raised its offer by 25 per cent, valuing Shin Kong at NT$254.2bn and increasing the value of the merged entity to NT$480.7bn.

After Taishin shares gained more than 2 per cent on Friday, its offer price per share exceeded Chinatrust’s for the first time, creating pressure for the rival group to up its bid as well.

UBS is advising Taishin, Morgan Stanley is advising Chinatrust, and Goldman Sachs is advising Shin Kong.

Taking over Shin Kong would mean Chinatrust would eclipse larger rivals Cathay and Fubon to become Taiwan’s largest financial group. If Taishin’s bid succeeds it would 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.”