Yuanta Core Pacific Securities Co (元大京華證券), the nation's largest brokerage, has made an offer for rival Asia Securities Inc (亞洲證券) and said it may make more acquisitions.
Yuanta agreed to give one share for every 2.3 shares of Asia Securities, the companies said in statements to the Taiwan Stock Exchange Corp. The offer values Asia Securities at NT$4.08 billion (US$116 million), based on the company's 334.3 million outstanding shares and Wednesday's closing price.
"By our calculations, Yuanta are paying about 1.2 times Asia Securities' book, picking up market share and giving them about 100 outlets," said Thomas Quarmby, an analyst at Deutsche Bank AG who has a buy recommendation on Yuanta's shares.
"To only be paying 20 percent over book value in a market where daily volumes are US$4 billion to US$5 billion is a good price," he said.
Banks, brokers and insurers, prodded by the government, are seeking partners and expanding into related businesses to become more competitive.
Yuanta's decision comes as daily stock trading rises, with some analysts forecasting daily average turnover during the first quarter of about US$3 billion.
Asia Securities' 10 outlets will be added to Yuanta's 93-branch network, boosting its market share to almost 10 percent from 8.6 percent, Yuanta vice president Lawrence Lee (
The transaction, marked by a letter of intent on Wednesday, is subject to approval by both companies' boards of directors, shareholders and regulators, Lee said.
The TAIEX has risen more than 15 percent this year, making it the fifth best performing leading stock index in the world this year. Rising economic growth is fueling expectations of demand for computers and related products made in Taiwan.
"Demand for equity in Taiwan is strong, which is great news for the brokers," Quarmby said. "We even expect the second quarter, which is seasonally weak for the brokers, to buck the trend this year."
There were about 400 brokerages operating in the country at the start of the 1990s. That number is now closer to 100, including Jih Sun Financial Holdings Co (日盛金控), Fortune Securities Co (日進證券) and Concord Securities Corp (康和證券). A collapse in stock prices in 1990, the Asian financial crises in 1997 and 1998, and the technology-boom collapse through 2000 and 2001 sent some out of business and led others to merge.
"Any of the small brokers could be on Yuanta's list for future acquisitions," Quarmby said. "The consolidation trend is a positive for the industry."
Asia Securities, formed in 1961, was the biggest trader of government bonds last year, according to data on the Gretai Securities Market Web site.
"We have always been open to mergers and acquisitions of securities companies as long as it boosts our competitiveness and increase shareholders' value," Lee said, declining to say if Yuanta is now in talks with other rivals.