(Bloomberg) -- Taiwan’s Shin Kong Financial Holding Co. agreed to merge with a smaller rival in a deal that sets up a takeover battle for Shin Kong with another suitor, CTBC Financial Holding Co.
Shin Kong and Taishin Financial Holding Co. will combine via a share swap, the two companies said at a press briefing on Thursday evening. Under the terms of the deal, which has been under discussion for more than two years, Taishin will issue new shares and swap 0.6022 common shares for each share of Shin Kong.
Shin Kong tumbled as much as 6.4% in Friday morning trade before easing to a 1.2% decline as of 10:28 a.m. Taishin gained 2.9%. Both shares were suspended Thursday.
The merger comes just two days after CTBC said it was making a tender offer for Shin Kong, a deal that would form Taiwan’s largest financial holding company by assets. A Shin Kong and Taishin merger would create the fourth-biggest finance group, just shy of CTBC.
Regulators on the island are seeking to boost the financial industry and diversify the economy away from its tech-heavy concentration. The merger plans come against a backdrop of intensified competition as demand for investment products increases.
The deal still faces uncertainty should CTBC obtain regulatory approval to push forward its tender offer with a higher bid. Shin Kong will vote on the proposed merger with Taishin at a Oct. 9 shareholders’ meeting.
CTBC’s board will decide its tender offer price for Shin Kong on Friday and submit it to the regulator for review, Taipei-based Economic Daily News reported, without disclosing its sources. CTBC plans to buy 30% of Shin Kong’s shares first before increasing to 51%, according to a separate report from United Daily News.
A deal would mark the first financial holding transaction in Taiwan since Fubon Financial Holding Co. acquired Jih Sun Financial Holdings Co. in 2022. Citigroup Inc. in 2023 sold its banking business in Taiwan to Singapore’s DBS Group Holdings Ltd.
Talks of a merger between Shin Kong and Taishin, founded by brothers in the Wu family, have heated up in recent years as Shin Kong struggled to lift itself out of a series of crises.
“In the past few years, Shin Kong was struggling due to poor management,” Taishin Chairman Wu Tong-liang told reporters, adding that the new executive team improved operations and the firm turned a profit in the first quarter. “But the crisis is not fully resolved yet, and we will work together to do our best in the future.”
Taishin has a market value of NT$244 billion, bigger than Shin Kong’s NT$214 billion. The offer values Shin Kong at NT$11.32 a share, a 9% discount to its closing price Wednesday of NT$12.45. If the deal closes, Shin Kong will be dissolved, according to a statement.
Chairman Suspended
In 2020, Shin Kong’s chairman Wu Tung-chin was suspended from his role at the life insurance business for poor internal controls that led to a NT$27.6 million ($860,000) fine for the unit. He continued to intervene in the firm’s operations, prompting another fine in 2022 and a regulatory call for its management team to operate independently.
Shin Kong swung to a profit of NT$3.11 billion in the first quarter from a loss a year earlier, though its life unit still struggled to recover. Taishin’s income slipped 1% to NT$5 billion for the period, with its banking business contributing much of the profits.
Taishin has held informal talks with CTBC, and tried to dissuade the bigger bank from making a bid for Shin Kong but to no avail, said Taishin Chairman Wu. A spokesperson for CTBC said the firm will provide a concrete response Friday.
For Shin Kong, the deal with Taishin offered more certainty.
“CTBC’s offer is like rainbow in the sky, which one can’t touch or feel it,” said Taishin President Lin Wei-chun. “But Taishin and Shin Kong’s deal is like steak on the table.”
Finance Empire
Wu and his younger brother Wu Tong-liang, who founded Taishin, both got their start under their father Wu Ho-su’s Shin Kong Group.
After drifting apart, the elder brother managed to build a financial empire with businesses in insurance, brokerage and underwriting. His flagship Shin Kong Life Insurance Co. is one of Taiwan’s largest by assets, yet it has faced regulatory scrutiny for its failure to meet capital adequacy requirements.
The younger Wu started with Taishin International Bank and over the years expanded into brokerage, underwriting and venture capital. Taishin acquired Prudential Financial’s life unit on the island in 2020.
The proposed deal needs to be approved by the Financial Supervisory Commission.
--With assistance from Foster Wong, Chien-Hua Wan and Amanda Wang.
(Adds shares in third paragraph, more details from sixth.)
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