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Holding company defends proposed three-way merger

China Development Financial Holding Corp (中華開發金控) yesterday defended its proposal for a three-way merger between its brokerage unit Grand Cathay Securities Co (大華證券), KGI Securities Co (中信證券) and President Securities Corp (統一證券), saying such a move would be neither unreasonable nor expensive.

"We think the offer of NT$24 per share [to acquire President Securities] is reasonable ... considering its high net value," Jeff Wang (王貞海), president of Grand Cathay Securities, told a press conference yesterday.

"This is not a buyer's market," as not many securities brokerages suitable for acquisition are left in the sector, Wang said.

A handful of securities houses, such as Fubon Securities Co (富邦證券) and Taiwan Securities Co (台証證券), have either already been absorbed by other financial holding companies, while some other brokerages have no intention of being sold, such as Polaris Securities Co (寶來證券), Wang said.

Wang made the comment after the proposed three-way merger was put on hold late Wednesday after key shareholders of China Development reportedly rejected the proposed share-swap ratio.

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 for every share they hold.

Wang yesterday said that China Development would actually spend less than NT$24 per share for President Securities through a mix of 40 percent cash and 60 percent stocks.

China Development's net value is NT$10.39 per share, compared with President Securities' NT$14.83 per share. China Development's offer to buy President Securities at NT$24 per share was based on a share price of NT$13.5, according to Grand Cathay's figures.

Based on the assessment, the financial holding company only pays 25 percent extra for the deal, compared with the 67 percent premium Mega Financial Holding Co (兆豐金控) paid for Barits International Securities (倍利證券) in 2002, Wang said.
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