Shares of Shinkong Financial Holding Co (新光金控), the owner of Taiwan's second-largest life insurer, suffered their biggest decline this year over concerns that a planned NT$20 billion (US$633.5 million) takeover of Macoto Bank (誠泰銀行) is too expensive.
Shinkong Financial said on Tuesday that it will pay 1.83 times Macoto's price-to-book ratio, higher than the industry average of 1.2. Macoto also has NT$2 billion in loans that must be written off, according to Taipei-based Shinkong.
"It's too expensive, considering Macoto's net asset value and its bad loans," said Jim Chang, a fund manager at Barits Securities Investment Co (倍立投信).
Shinkong shares closed down 3.5 percent at NT$28.70, after earlier falling as low as NT$27.75.
The lender said it will exchange one of its shares for every 1.14 shares in the privately held Macoto, which caters to 1.43 million customers at 80 branches.
"Shinkong believes that what it has to write off for bad loans will be counterbalanced by undervalued property assets at Macoto," said Will McLane, an executive director in the Asia financial institutions group at Morgan Stanley. "The deal will have a catalytic effect on the industry because it surprised some other financial players, who are realizing that consolidation is going to happen."
Standard Chartered Plc, a London-based lender that makes two-thirds of its profits in Asia, in January agreed to pay 1.87 times book value for Korea First Bank. Fubon Financial Holding Co (富邦金控), Taiwan's biggest bank, paid 1.16 times the book value of Hong Kong's International Bank of Asia (港基銀行) at the beginning of this year.
At the stock-swap ratio, based on a 30-day trading average, Shinkong shares are worth NT$32.17 each and Macoto shares NT$28.20, the companies said. Shinkong yesterday had a market value of NT$94.6 billion.
Macoto, which offers personal finance, credit card, trust and remittance services, has a net asset value of NT$15.40 per share, Shinkong said in a statement.
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