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Taishin says Chang Hwa merger back on

Taishin Financial Holding Co (台新金控) shares gained in the bourse yesterday after reports said the nation's second-biggest financial group was resuming its merger plan with state-controlled Chang Hwa Bank (彰化銀行) through a share swap.

Taishin Financial closed up 0.3 percent to NT$16.8, while Chang Hwa dropped 0.5 percent to NT$20 in the Taiwan Stock Exchange (TSE) yesterday.

Downplaying the reports, Taishin Financial's acting spokesman Bingo Lee said that the share swap plan initiated last year would go as planned but the company had yet to set a timetable.

This was a sensitive issue and Taishin would not push the issue until the timing was right, Lee said.

The Chinese-language Commercial Times reported yesterday that Taishin Financial was planning to resume the long-stagnant merger with Chang Hwa.

The first step would be to hire financial advisers, the report said.

The merger proposal would be brought to the lender's board meeting for discussions in June before its annual general meeting takes place on June 15, the report added.

In response, Chang Hwa said in a filing to the TSE it was not in talks with Taishin Financial on the selection of financial advisers, nor that it had been discussing the merger.

Taishin Financial controls 25 percent of the lender and eight of the 15 board seats.

As per the regulator's directives, the company will need to offload a 2.5 percent stake by June 15 because of its failure to meet financial requirements earlier on.

The plan has been on ice since last October, after Chang Hwa's state-appointed board directors walked out of boardroom to oppose allegedly flawed procedures which gave Taishin Financial too much of an advantage in the merger.

Taishin Financial allegedly wanted to swap shares at a 1 to 1 ratio.

"The merger will happen eventually, but not now. This is not a good time and a forced takeover would spark resistance," said Chu Yu-chun (朱玉君), an analyst at SinoPac Securities Co (永豐金證券).

As a result of Taishin's lower share price and dented book value because of huge losses stemming from mounting unsecured bad loans, coupled with its remaining weak profitability this year, the share swap ratio would be disadvantageous to the company, Chu said.

Conflict of interests is another issue.

The Ministry of Economic Affairs has ruled that board directors representing Taishin Financial's control in Chang Hwa should avoid discussion of and voting on any issues regarding the merger.

Whether Taishin-appointed directors will be able to avoid conflicts of interests will depend on finance ministry directives governing state holdings in the bank, Chang Hwa's spokesman James Shih (施建安) said.
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