E.Sun Financial Holding Co’s rumored acquisition of Mercuries Life Insurance Co at NT$8.2 per share was the most controversial business news in Taiwan over the past few days and was far more interesting than the earnings results released by several electronics companies. The merger and acquisition (M&A) deal involves questionable information disclosure that could harm the rights of shareholders, and is attracting a lot of attention from investors, the business circle, lawmakers and financial regulators.
It all started when CTBC Financial Holding Co on Oct. 23 announced that its board of directors had approved an investment plan without naming the target. That fueled speculation that it had submitted a formal bid to acquire financially strained Mercuries Life. The next day, local media reported that E.Sun Financial had outbid CTBC Financial to win Mercuries Life. Investors reacted positively to the possibility of a deal — Mercuries Life could improve its financial structure while E.Sun Financial could enter the life insurance business and complement its strength in banking and wealth management. However, neither companies confirmed the details at the time.
CTBC Financial on Monday last week during its stock exchange announcement said it had completed the bidding process of the investment and that it had no impact on the business. E.Sun Financial remained tight-lipped about the deal during the day and filed an exchange statement that night, saying it would disclose information after receiving board approval.
The next morning, Mercuries Life said it would release information based on board resolutions, and in accordance with company procedures and laws.
While all the parties involved said their assessment and execution of the M&A had strictly adhered to corporate governance principles and board regulations, followed the requirements of regulatory authorities and maintained strict confidentiality of the binding offer, they seemed to have forgotten that it is a publicly traded firm’s obligation to provide shareholders with full and transparent information on such matters as soon as possible. Does their delayed disclosure of information, which neither clarified rumors nor disclosed any details, not expose local investors to risks — especially those who bought E.Sun Financial shares, and were trading in the dark and unable to prepare a response amid a sell-off — while allowing insiders to gain from the information discrepancy?
The parties had signed confidentiality agreements and could not disclose the content of the deal, but their statements raised another question: Had their management teams submitted a binding offer with details such as transaction price and share swap ratio along with their board of directors’ authorization?
Even if the management teams had gathered opinions from financial, accounting or legal advisers about the M&A, prior authorization from the board of directors is necessary. The board plays a crucial role in maintaining corporate governance. Submitting a binding offer without their approval is tantamount to acting unilaterally and renders the board ineffective.
The M&A has not only raised the question of whether the parties involved can regain investors’ confidence in their management integrity and corporate governance — especially E.Sun Financial, which has for years carefully cultivated an image of a model financial holding company in Taiwan — but also puts the financial and stock exchange regulators’ credibility to the test. Moreover, the issue could have negative implications for local financial markets if the regulatory authorities fail to take punitive action against the parties.
To resolve doubts and investor dissatisfaction, the authorities should conduct a thorough investigation of the issue, and if the results suggest traces of illegality, justice could be enforced.
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