Fri, Mar 25, 2005 - Page 10 News List

MOF urges assessment of three-way merger

ON HOLD A merger between KGI, Presidential and Grand Cathay Securities was stopped after a China Development board member said the deal was not properly appraised

By Amber Chung  /  STAFF REPORTER

The Ministry of Finance, which holds nearly a 4 percent stake in China Development Financial Holding Corp (中華開發金控), yesterday reiterated that a lack of professional appraisals is key to stop a proposed three-in-one merger between Grand Cathay Securities Co (大華證券), KGI Securities Co (中信證券) and President Securities Corp (統一證券).

Originally Grand Cathay, run by China Development Financial, hoped to complete the acquisition of KGI Securities and President Securities on Wednesday. But the deal is now temporarily on hold after one of China Development's board members rejected the merger plan.

"There should be an objective appraisal by professional institutions for reasonable prices [before the acquisition takes place]," Vice Finance Minister Gordon Chen (陳樹) told the legislative finance committee yesterday.

The board meeting to discuss the deal was convened hastily, and did not provide sufficient time for board members to deliberate on the deal, Chen said.

President Securities fell 2.7 percent to NT$18 on the local bourse yesterday, while KGI fell to 0.6 percent to NT$15.55. China Development also saw declines, dropping 2 percent to NT$12.5

It is reported that KGI Securities shareholders would get 1.468 shares of China Development for every share they hold, while President Securities shareholders would get 1.778 shares of China Development and NT$9.6 cash for every share they hold.

China Development yesterday declined to confirm the proposed share exchange ratio, but said a board member representing International Commercial Bank of China (中國商銀) rejected the plan in a marathon board meeting on Wednesday.

Mega Financial Holding Co (兆豐金控), the parent company of International Commercial, was interested in acquiring President Securities with an offer of NT$18.5 per share. But the Mega Financial deal failed as the securities brokerage demanded NT$24 per share.

The discussion of the proposed three-in-one merger is expected to hold another board meeting on April 10, 40 days prior to the shareholders meeting required by regulations, China Development officials said yesterday.

If the deal goes through as planned, China Development would own the nation's largest securities brokerage, with a market share of some 10.43 percent, the company's chief financial officer Sherie Chiu (邱德馨) said.

The proposed share-swap ratio could translate into about NT$20 per share for KGI Securities and around NT$24 per share for President Securities.

"The NT$24 price per share to acquire President Securities is not very reasonable, considering its net value is equivalent to around NT$14 per share," said Chu Yu-chun (朱玉君), an analyst with SinoPac Securities Corp (建華證券).

A reasonable pricing would be about NT$18 per share, as Mega offered before, she said.

Chu said she would downgrade China Development's rating for long-term investment value, in light of the overly high stock exchange ratio and the company's overly expanded capital stock that would further dilute earnings per share after the acquisition deal.

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