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Yuanta, Fubon competing to buy Capital Securities

Yuanta Financial Holding Co (元大金控) and Fubon Financial Holdings Co (富邦金控) are competing to buy a stake in Taiwanese brokerage Capital Securities Corp (群益證券), two people familiar with the matter said.

Yuanta, Taiwan’s biggest securities firm, and Fubon, the nation’s second-largest financial services company, are in talks to buy the holdings of Lin Yuh-ling (林堉璘), Capital Securities’ biggest shareholder, and related parties, the people said. A deal may value Capital Securities at as much as US$1.4 billion, they said, declining to be identified before an agreement is reached.

Capital Securities controls about 4 percent of Taiwan’s entire stock trading volume, less than half of the share of Yuanta, Taiwan Ratings Co (中華信評) has said.

The TAIEX index is Asia’s third-best performing benchmark this year and trading volumes have increased on optimism the government of president-elect Ma Ying- jeou (馬英九) will bolster ties with China.

“The industry is very fragmented and the way to survive is to increase market share,” said Steven Chen (陳智誠), an analyst at Taiwan Ratings, the local partner of Standard & Poor’s.

Tony Tan (譚得誠), executive vice president of Capital Securities, said the company “doesn’t rule out the possibility of selling a stake or cooperating with a good company,” declining to identify potential partners.

Lin denied a request to conduct an interview.

The Lin family owns at least 35 percent of Capital Securities through Hong Tai Group (宏泰集團), the parent of property developer Hung Sheng Construction Ltd (宏盛建設), said Celia Wang (王姵文), a Taipei-based analyst at Yuanta Securities Co (元大證券).

Lin hasn’t disclosed his aggregate holdings and owns the shares through different entities and different representatives.

Lin may sell his entire stake for cash or accept shares in the buyer for part of it, the people said.

The bidders may offer NT$26 to NT$28 per share for Capital Securities shares, valuing the company at between US$1.3 billion and US$1.4 billion, the people said. Capital Securities shares rose 4.5 percent yesterday, bringing its market value to US$1.18 billion. The stock has rallied 51 percent this year.

The range represents about 1.7 times the company’s book value, Wang said. She said past acquisitions in the industry have valued the targets at about 1.2 times book value on average. Capital Securities has about 45 branches in Taiwan, she said.

The average daily trading volume on Taiwan’s stock exchange rose to 5.2 billion shares this year from 4.7 billion last year, data compiled by Bloomberg shows. The TAIEX index has climbed 2.4 percent this year, even as benchmarks in Hong Kong and China dropped amid the global credit crisis.

Capital Securities was founded by chief executive officer George Chen (陳田文) in 1988 and has operations in Hong Kong and Shanghai. Chen, who’s also the company’s chairman, is the son-in-law of Lin and holds a stake in the company, the people said.

Lin agreed to sell part of his stake in unprofitable EnTie Commercial Bank (安泰銀行) to Longreach Group, the buyout firm founded by former UBS AG banker Mark Chiba, last June.

Longreach agreed to pay NT$23 billion (US$756 million) for 51 percent of the bank, and has become the biggest shareholder.
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