Taiwan’s Financial Supervisory Commission (FSC) has rejected CTBC Financial Holding Co’s proposed acquisition of Shin Kong Financial Holding Co, citing concerns over insufficient details in the bid and the potential risks to market stability.
The regulatory body expressed reservations about the use of share swaps in hostile takeovers, a method that it rarely approves due to its potential impact on stock prices.
During a press briefing, FSC Deputy Chairwoman Jean Chiu said the proposal from CTBC lacked a clear plan to manage foreseeable risks.
“CTBC Financial failed to put forth a sound plan to minimise predictable uncertainties,” she said, as reported by Taipei Times.
CTBC Financial had planned to acquire 51% of Shin Kong Financial through a combination of public tender offers and share swaps. This proposal followed an earlier announcement from Taishin Financial Holding Co and Shin Kong Financial regarding their merger, which would also involve a share swap.
However, the FSC pointed out several shortcomings in CTBC’s proposal. The regulator noted that the company failed to clarify how it would secure funding for the tender offer or address the potential consequences if the acquisition fell through.
Moreover, there was no commitment to increasing capital for Shin Kong Life Insurance (Shin Kong Life), the key subsidiary of Shin Kong Financial that has faced financial difficulties.
Chiu explained that CTBC did not demonstrate a sufficient understanding of Shin Kong Life Insurance’s financial position, stressing the need for comprehensive financial evaluations in deals involving major financial institutions.
Shin Kong Life has been under financial strain and is considered a critical part of Shin Kong Financial's overall business.
Chiu also noted that only six out of 195 mergers and acquisitions in Taiwan’s financial sector since 2002 involved share swaps. The FSC has consistently refrained from approving share swaps in the acquisition of banks or life insurance companies due to concerns about potential volatility in share prices. Unlike hostile takeovers, mergers typically have board and shareholder approvals before moving forward to regulatory review.
CTBC’s proposal came after the boards of Taishin Financial and Shin Kong Financial had already agreed to a merger. The FSC expressed concern about the ongoing public disagreements between CTBC and Taishin, encouraging both parties to prioritise market stability and investor confidence.
The FSC emphasised that it does not favour mergers over hostile takeovers, but when reviewing hostile bids, it prioritises cash offers to minimise disputes over management control and ensure smoother operations. Historically, most tender offers in Taiwan have targeted 80% ownership to avoid management conflicts and operational disruptions.
Taishin Financial and Shin Kong Financial must now address any resistance from their shareholders before the proposed merger can proceed to the FSC for further review. This decision underscores the regulator’s cautious approach to large-scale mergers and acquisitions in Taiwan’s financial sector, particularly when it involves institutions like Shin Kong Life.
The rivalry between CTBC and Taishin marks Taiwan’s first major financial takeover battle since Fubon Financial Holding Co acquired Jih Sun Financial in 2022.
Bloomberg noted that analysts have long suggested that Taiwan’s financial market could benefit from consolidation, with over a dozen financial holding companies operating in the relatively small market of 23 million people.
The next major step comes on Oct. 9 when Shin Kong shareholders are expected to vote on Taishin’s merger proposal.
