China Development bids US$273m for brokerage

China Development Financial Holding Corp (中華開發金控) offered about NT$9.5 billion (US$273 million) for the Grand Cathay Securities Corp (大華證券) shares it doesn't already own, as the nation's largest corporate lender expands its brokerage business.

China Development will offer one of its shares for every 1.2 shares in Grand Cathay, which says is the nation's second-largest arranger of local share sales. That values the company at about NT$21 a share, 9 percent more than yesterday's closing price.

"They paid a premium for sure," said Rachel Wu, a bank analyst at UBS Warburg in Taiwan. Still, "the market share of Grand Cathay is decent, and they have some reputation in underwriting."

China Development, which currently handles just 0.1 percent of trading in Taiwan stocks, will lift that share to about 2.3 percent by adding Grand Cathay.

Earlier this month the lender paid the KMT NT$11.1 billion, or NT$21 a share, to boost its stake in the broker from 17 percent to 62 percent.

The acquisition comes four months after China Development was formed under new laws letting banks, brokers and insurers combine their businesses under a single corporate umbrella. It plans two or three more acquisitions to lift its share of the securities market to 8 percent, China Development Chairman Liu Tai-ying (劉泰英) said, adding the lender also wants to buy a commercial bank.

"In order to make the financial holding company work, we need to cross-sell brokerage services to corporate and individual banking clients," Liu said.

China Development last year failed in an effort to gain control of the brokerage through a hostile takeover in which it offered NT$20 for each Grand Cathay share. In that effort it only managed to boost its stake to 17 percent from 5 percent.

"Our takeover attempt failed last year because [KMT] Chairman Lien Chan (連戰) avoided seeing me, fearing my complaints about other party businesses," Liu said. "This year, he finally agreed to my takeover request."

"Grand Cathay is the dominant player in domestic underwriting, which is a perfect match with China Development's corporate lending and venture capital investment businesses," said Lin Tsui-pin (林翠萍), who helps manage Prudential Securities Investment Trust Co's (保誠投信) NT$125 billion in Taiwan assets.