Chinatrust buyout rumor unlikely true, analysts say

Investors chat in front of electronic stock monitors at a securities trading house in Taipei on Nov. 15. PHOTO: AP

While reports about Fubon Financial Holding Co's (富邦金控) investment in rival Chinatrust Financial Holding Co (中國信託金控) stirred acquisition speculation last week, market watchers said Fubon is unlikely to pursue a hostile takeover of the company.

Senior management at Fubon Financial have a realistic appreciation of the value of Chinatrust Financial, Credit Suisse analyst Sherry Lin (林淑娥) said in a report released on the weekend, citing the results of their recent visit to Fubon Financial chairman Daniel Tsai (蔡明忠).

A hostile takeover is likely to drive away the solid management team at Chinatrust Financial, which Fubon Financial respects, Lin said.

The Chinese-language Commercial Times reported last week that Fubon Financial has bought more than 100 million shares for more than NT$1 billion (US$30.69 million) through its insurance unit Fubon Life Assurance Co (富邦人壽), which sparked takeover speculation in the market.

In response, Fubon Financial said that it had been pursuing a purely financial investment, while Chinatrust Financial said the rival had only acquired a 2 percent stake. To reach the 5 percent limit of an insurer's working capital stipulated by regulators as the point where a merger bid is underway, Fubon would have to fork out more than NT$10 billion.

While suggesting that a take-over of Chinatrust Financial may be premature, Fubon Financial's move testifies to widespread market interest in the company, which enjoys a productive franchise and improving prospects. The interest comes despite the investigations into the Koo family, the founding and largest shareholder, for its disputed takeover bid on Mega Financial Holding Co (兆豐金控), Lin said.

The investigations could also trigger Chinatrust Financial to expedite its plan to seek a friendly strategic investor, she added.

Chinatrust Financial is reputed to be in talks with Goldman Sachs for a possible alliance but the company has denied the reports.

Credit Suisse maintained its outperform rating on Chinatrust Financial in spite of raised loss estimate of NT$0.84 per share from NT$0.13 for this year and a 16 percent reduction in earnings estimate for next year to NT$1.58 per share, considering the company's plan to book an extra NT$4 billion to NT$5 billion to cover restructuring.

The target share price for the next 12 months was trimmed down to NT$33.3 from NT$34 accordingly, the research note said.

Pandora Lee (李懿璇), a financial analyst with UBS Securities Ptd, Taipei branch, said she did not expect to see significant merger and acquisition deals between major players to reshape the nation's banking sector over the next three years.

There are no imminent threats to trigger instant expansion demand as none of the big players have doubled their size overnight through takeover thus far, Lee said.