The government’s rejection last week of a Hong Kong consortium’s application to acquire American International Group’s (AIG) local insurance unit ended an 11-month review process of a deal that has focused people’s attention on the fates of Nan Shan Life Insurance Co’s 4 million policyholders, approximately 4,000 employees and more than 34,000 agents in Taiwan.
The review process offered the public and the government an opportunity to examine the consortium’s financial strength and commitment to Nan Shan, but perhaps more importantly, this high-profile financial merger put the capability and credibility of the nation’s regulatory agencies to the test in the aftermath of the global financial crisis.
Indeed, AIG’s plan to sell Nan Shan is too sensitive an issue to be taken lightly, because the 40-year-old local insurer has a net worth of NT$140.3 billion (US$4.38 billion), accounting for one-third of the value of Taiwan’s life insurance market, and the proposed US$2.15 billion sale to the consortium, comprising China Strategic Holdings and Primus Financial Holdings, is by far the largest merger and acquisition deal in the nation’s insurance industry.
Unfortunately, AIG failed to address Taiwanese regulatory agencies’ concerns regarding financial security by choosing a most unlikely candidate as the potential owner of Nan Shan, since many people were suspicious about its sources of funding and experience as an insurance operator.
The Hong Kong-listed China Strategic — which was supposed to own nearly an 80 percent stake in Nan Shan if the deal had gone ahead — is actually a battery maker, even though it appointed former Hong Kong commerce secretary Frederick Ma (馬時亨) as chairman and former Hang Seng Bank chief executive Raymond Or (柯清輝) as its chief executive officer.
Primus Financial only came into existence about 17 months ago after it was co-founded by Robert Morse, the former head of Citigroup’s Asia-Pacific institutional clients group. As a private equity fund, the Nan Shan deal was just one of many investment opportunities Primus Financial was looking into in the region, but what has really raised people’s eyebrows is its attempt to leverage local capital on the lookout for quick gains.
Another oddity surrounding the deal concerns the fact that Taiwan still does not allow Chinese nationals to invest in the local insurance sector. Following months of investigation, the real shareholding structure of China Strategic remained a mystery to most people. However, it did become clear that some shareholders were found to be members of the Chinese People’s Political Consultative Conference and a few other board members are Chinese citizens.
Beyond these problems pertaining to the potential buyer, the unsettled disputes between Nan Shan’s labor union and the company’s management led to several protests outside the Legislative Yuan in the past few months, which placed pressure on lawmakers to demand strict regulatory review of the new buyer.
Last week, the labor union welcomed the government’s decision to turn down the consortium’s takeover application. Even so, the government’s rejection of the deal is not an ending to the story; rather it is the beginning of another chapter, since the fate of Nan Shan remains undetermined.
While it is not yet known whether the New York-based AIG will streamline Nan Shan’s operation, look for a new buyer or just stay put since it still has 30 days to appeal the decision, all the sensitive issues surrounding the Nan Shan sale were thoroughly considered by the regulatory agencies and examined by the public, establishing a robust and thorough precedent for future deals of this kind in Taiwan.
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