China Development Financial Holding Corp's (中華開發金控) share price yesterday tumbled as investors rushed to unload the stocks amid bearish prospects for the company's proposed three-way merger.
China Development shares plunged 3.89 percent to close at NT$12.35 on the Taiwan Stock Exchange as overseas and institutional investors jointly sold a net of over 25 million stocks.
Led by China Development's decline, financial shares dropped 2.18 percent on average on the local bourse, with KGI Securities down 3 percent to NT$33.9 and President Securities down 0.88 percent at NT$16.85.
Minister of Finance Lin Chuan (
Lin urged the financial holding company to come up with other options and reformulate the share-swap ratio so that the government-appointed and private directors can reach agreement.
Seven of China Development's 21 board members are government-appointed.
"We will follow the minister's clear instructions [on the proposed merger deal]," Joyce Chen (
Chen declined to comment on whether China Development will approach President Securities with a lower price in a bid to help carry through the the planned merger.
China Development has reportedly assigned Jeff Wang (
Wang and President Securities spokeswoman Grace Lee (
The financial holding firm planned to buy out President Securities through a 40 percent cash and 60 percent stock deal, with an offer of NT$24 per share and a swap ratio of one share of President Securities for 1.778 shares of China Development. The swap ratio offered for KGI Securities was one share for 1.468 shares of China Development.
"The key factor in the deal is the attitude of the finance ministry ? and we sense a relaxation in their viewpoint, likely due to the mission to promote the consolidation of the financial sector," said Chu Yu-chun (
Nevertheless, China Development's offer price is too high, the market watcher said.
A reasonable offer for President Securities, which has an unadjusted net book value per share of around NT$14.6, is between NT$17.5 and NT$18.95, Chu said, citing the market convention that the offer price is usually 1.2 to 1.3 times the net book value.
Also, the three-way merger would not bring an annual profit contribution of over NT$10 billion to China Development, as the company had claimed, Chu said. The highest combined pre-tax income of the three brokerages was around NT$5.85 billion in 2003, Chu added.
"Therefore, it is questionable that the financial holding firm could offset ... the NT$75 billion they would pay in the deal in merely seven or eight years, as they expect," the analyst said.
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