金融機構整併現況及交易 協合國際法律事務所 金文悅 2008/10. 金融市場現況 ...
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金融機構整併現況及交易
協合國際法律事務所金文悅2008/10
金融市場現況
Capital Market
Insurance Industry
Banking Industry
2
Capital Markets
Trading volume: 2nd in Asia (2004); 15th in Asia (2005)
Market cap: No. 1 in emerging market; 2nd in Asia (2004); No. 21 in Asia (11/2006)
Insurance Industry
Size: 4th largest non-life market in Asia based on premiums
P&C penetration at 1.0% lower than other mature Asian
markets (Japan: 1.5% ; South Korea: 3.0%)
Growth: CAGR of 4.4% from 2006-2016 (Swiss Re)
Market share: Top 5 insurers accounted for 55% of the
market as of 2006
Relatively unsophisticated market, as a
result of historical regulatory restrictions
Taiwanese market is a mix of a mature
market in life but still under-penetrated in
non-life.
Penetration rate of 14.6% P&C: 1.0% Life: 13.6%
Total market (2006 GWP): NT$1 677bn P&C: NT$114bn Life: NT$1 563bn
CAGR (compound annual growth rate) 2002 – 2006 P&C: 3.0% Life: 15.3%
Estimated CAGR 2006 – 2016 (Swiss Re) P&C: 4.4% Life: 6.6%
FSC Reform:
Risk-Based Capital System
Relax overseas investment
Adopt negative listing
Banking Industry
As of June 30, 2007:
47 domestic banks (including 74 foreign banks); 31 savings ban
ks and 278 farmers’ and fishermen’s associations.
14 Faces with 14 banks, 14 securities firms, 7 insurance compan
ies
Market share: Top 5 accounted for 38%; top 10 accounted for 6
3%; 26 banks less than 2%; The Bank of Taiwan (9.85%); prop
osed Taiwan FHC (18% in lending and deposit)
Capital strength
10.75
10.40
10.63
10.07
10.67
10.75
9.60
9.80
10.00
10.20
10.40
10.60
10.80
11.00
BIS ratio% 10.75 10.40 10.63 10.07 10.67 10.75
2000 2001 2002 2003 2004 2005 June
BIS ratio
• BIS: 10.11 (Dec. 2006)
• BIS: 10.62 (June 2007)
630659 670
719
773
48 48
43 44
48
0
100
200
300
400
500
600
700
800
900
2000 2001 2002 2003 2004
Year
Ass
et
30
35
40
45
50
55
60
65
Ne
t wo
rth
asset(US$bil.)
net worth(US$bil.)
* 2007: The total assets reached US$850 billion.
Assets and net worth
• NPL: 11.76 in 4/2002; 2.87﹪ % in 7/2005; 2.13% in 2006; 2.32% in 6/ 2007; coverage ratio: 58.53% in 2006; 55.14% in 6/2007
Trend of NPL ratio & Coverage ratio
0%
2%
4%
6%
8%
10%
12%
Q4.2001 Q4. 2002 Q4. 2003 Q4. 2004 Jul. 2005
NP
L r
atio
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Co
ve
rag
e r
atio
NPL ratio
Coverage ratio
Asset Quality
Profitability
ROA : from -0.47% in 2002; 0.61% in 2004; 0.17% in 7/2007
ROE : from -7.35% in 2002; 10.3% in 2004; 2.76% in 7/2007
ROA, ROE in recent 5 years
6.04
3.61
-7.35
3.50
10.30
0.47
0.26
-0.47
0.21
0.61
-8
-6
-4
-2
0
2
4
6
8
10
12
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
ROE ROA
Profitability7/2007 ROA: 0.17% (international averag
e > 1%)7/2007 ROE: 2.76% (international averag
e: 15~20%)2004 Revenue: 78% from loan (internati
onal average: 40%)
Comparison with Other Banks
2.01%
1.47%
1.06%
0.88%
1.38%
0.62%
0.05%
0.49%
1.43%
1.87%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%C
athay
Unit
ed B
ank
Tai
shin
Ban
k
Chin
a T
rust
ICB
C
Tai
pei
Fubon
Ban
k
HS
BC
Miz
uho F
inan
cial
Gro
up
Indu
stri
al a
nd
Com
mer
cial
Ban
k o
f
Chin
a
DB
S B
ank
Kook
min
Ban
k
ROA Dec 31, 2004
Near Term Target
LT Target
As of June 2007
• Cathay Bank: 0.35%
• Taishin Bank: 0.36%
• Chinatrust: 0.83%
• Mega Bank: 0.35%
• Taipei Fubon: 0.35%
ROE
25.05%
16.57%
10.63%
1.70%
11.20%
23.50% 23.20%
28.80%
23.12%
19.71%
0%
5%
10%
15%
20%
25%
30%
35%Ca
thay
Uni
ted
Bank
Chin
a Tr
ust
Taish
inBa
nk ICBC
Taip
eiFu
bon
Bank HSB
C
Indu
stria
l and
com
mer
cial
Ban
kof
Chi
na
DBS
Miz
uho
Fina
ncia
lG
roup
Koo
kmin
Ban
k
Dec 31, 2004
As of June 2007:
• Cathay Bank: 5.6%
• Taishin Bank: 7%
• Chinatrust: 17.16%
• Mega Bank: 4.18%
• Taipei Fubon: 5.1%
Asset
76 54 48 47
685
107
1,296
177
1,277
62
0
200
400
600
800
1,000
1,200
1,400
Bank
ofTa
iwan
Taiwa
nCo
operat
ive Bank
Land
Bank
Hua N
anBa
nk
First
Bank HS
BC
Indust
rial an
dcom
merci
alBa
nk of
China
DBS
Mizuh
oFin
ancial
Group
Kookm
inBa
nk
US$bil.
Dec 31, 2004
Taiwan FHC
Asset: US$159 billion (No.89 worldwide; 18 in Asia; exceeding top 3 banks in Singapore)
Branch: 308Overseas operation:16Market share: 18% in both lending and deposit
market
Banking Consolidation
21
Financial Reforms in 2002
July 2002: two-year Financial Reform Plan focused on NPLsincrease the competitiveness of financial insti
tutions establish an integrated financial supervisory
body to supervise financial institutions
Single Financial Regulator
FSC was established on July 1, 2004Single financial regulator to supervise the
securities, banking and insurance industries
Regulators
Prior to the Reform Ministry of Finance (MOF):
banking, securities & futures, insurance, taxation, fiscal policy, budget, management of government owned shares
Central Bank of China in Taiwan (CBC): monetary policy, FX policy, inspection of banks
After the Reform
MOFtaxation, fiscal policy, budget, management of government owned shares
CBCmonetary and FX policy and implementation
FSC (financial regulator)supervision of the banking, securities & futures and insurance industries and related capital markets activities; inspection of all financial institutions
FSC Major Tasks
• Encourage consolidation of the Banking Sector
• Strengthen corporate governance• Relax restrictions on financial business activities• Internationalize capital market practices• Strengthen enforcement against securities
violations
Banking Consolidation in 2004
Reform in M&A Laws and Regulations
From 2001 to 2002:
• Financial Institution Merger Law (FSC)
• Financial Holding Company Law (FSC)• 14 Faces established
• Enterprise M&A Law (MOEA)
In October 2004, President Chen announced the four objectives regarding consolidation of the banking sector
By the end of 2005:• At least three banks’ total assets will exceed 10% market share• government owned banks reduced from 12 to 6 By the end of 2006:• Faces reduced from 14 to 7• at least one bank run by a foreign financial institution
Major Transactions
From 2002 to 2005• Taishin Bank merged Da An Bank• Fubon share merged Taipei Bank • Cathay Bank merged United World Chinese Ba
nk • Chiao Tung Bank merged ICBC• Chinatrust Bank merged Grand Commercial Ba
nk
From 2005 to 2007 SCB tender offered Hsin Chu BankLong Reach acquired 51% of Entie BankCarlyle acquired 25% of Ta Chong BankMS' minority stake in Chinatrust and E-Su
n
Acquisition via RTC Tai Tong Business Bank (Chinatrust)Hwa Lian Business Bank (ABN AMRO)CUTIC (Cathay) BOWA (DBS)Chinese Bank (HSBC) Asia Trust (SCB) – 10/2008
FSC’s Principal Regulatory Incentives to Facilitate Consolidation of the Banking Sector
FSC Regulatory Incentives
During 2005: Capital allocationInvestment by FHC (allow 5% investment by FHC,
subject to implementation of the M&A plan approved by the FSC)
Amended the tender offer rules100% Foreign FHC or FHC equivalent entity to make
investment in a domestic bank Amendment to the Financial Institution Merger Law and
the FHC Law
Capital Allocation
Prior to the reform: After 100% share swap between a financial
institution and FHC, cash remains at subsidiary
Dividend can only be distributed once a yearFor banks, no capital reduction is allowed
for BIS below 12%
After the reform: 10% BIS plus 6% tier one capitalPotential excess cash: NT$144 billion (14
FHC)
Investments by FHC
Financial Holdco LawFHC may invest in FI and non-FI, subject to
the approval of FSC Max. of 5% paid-in capital for investment in
a non-FI; no participation in the management
Banks under FHC not allowed to make long-term investments
Investments by FHC
Old guidelines: prior approval for any investment; investment must exceed 25% of the target company
2005 guidelines: Min. of 5% investment completed within one year, with the plan of consolidation within 3 years
2007 policy change (?)
Major Investment Review Guidelines
• Unless otherwise approved, DLR below 125%
• “Fit and Proper’’ test for investment of more than 10% in an FHC, or 15% in a bank
• No cumulative losses
Tender Offer Rules
Mandatory tender offer: 20% within 50 daysNo squeeze-out rule (SCB integration)70% acquisition of shares triggers delisting (?)No prior approval from FSC requiredPrior approval from FSC required for regulated
industries Right to call shareholders’ meeting to re-elect
directors for any purchase of 51% or more
Amendments to the Tender Offer Rules
Relax acquisition consideration (foreign stocks and bonds allowed)
Strengthen disclosure requirements Balance commercial risk between offeror and of
fereeFSC’s neutral policy toward hostile takeover
Amendments to Financial Institution Merger Law
Tax incentives Goodwill amortized in 5 - 15 years
Amendments to Financial Holdco Law
Cash can be used as consideration in a share swap (FSC letter)
Bank under FHC can make long-term investments
(Amendments pending at the Executive Yuan)
Foreign Investment in Banks
Banking Law: Max. of 25% investment in a
bank by same person or related persons
Exception to 100% investment - FHC
- trouble banks - government owned banks
Relaxed Foreign Investment in Banks
• Relax definition of foreign FHC
• Cross sectors
• SPV of a FHC
How to kick-off an M&A deal?
Major Milestones
Identify target (Target analysis) Cooking the deal Signing of NDA Signing of MOU/ indicative terms (binding or non-
binding) Due diligence Negotiation of SPA and SHA Arrangement of financing Signing Closing
Target Analysis
Taiwan Market
Business profile of Target
Rationale
Preliminary Valuation
Proposed offer
P&C Insurance Company –
A cross border acquisition
Pros
– Immediate market presence with critical mass and 100% ownership and control
– Stable and profitable business with a long history in the market
– Potential for growth in earnings mainly coming from a less conservative reinsurance program
– Potential for a non-life bancassurance distribution
Pros
– Prepare Acquirer to seize opportunities in the life/asset management market should they arise
– Give Acquirer Asia Team P&C region further scale. Acquisition may facilitate opening of a direct platform at a later stage
– Attractive market as proven by entry of peers and industry growth projections
– Access to experienced mandarin speaking management and employees
Cons
– Uncertain how much of the business is sourced – while we have initial indications from management that this is not a material component of the business
– PRC views Taiwan as its own – while we understand this has not been a material impediment to others in the past, it may add further complexity to managing Acquirer’s relationship with CIRC
– Employee considerations – likely limited restructuring (if needed) will be allowed in the first couple of years. While probably not a major issue for this deal, it may need to be considered for future bolt-on acquisitions
Cons
– Relationship with regulator– EGM required – Significant additional volatility of earnings
might be a consequence of reinsurance optimization
Execution Team
Principals (high-level task force)
FA
Lawyer
CPA/Tax Advisor
Bank consultant/Insurance Consultant
F A
Project coordination
Financial modeling
Structure
Bidding document (if via bidding)
Term sheet; Info Memo
Financing arrangement
Lawyer
Structure
Contract drafting (mandate, NDA, MOU, SPA, SHA, escrow agreement, financing agreement)
Legal due diligence
Contract nego.
Regulatory approvals
Closing documents
CPA
Accounting ddCross-border tax planning and executio
n
Banking Consultant
Operational dd
Indicative terms
Valuation assumptions:• The level of reserves provided for in the account is
appropriate• The parties will enter into a mutually agreed non-life
bancassurance agreement• No material reinsurance contract has been entered by
Target for more than one year• The quality of the assets in the portfolio • The capacity for Acquirer to extract part of the excess
capital
• Satisfactory completion of due diligence on the Company• Negotiation, preparation and execution of definitive,
legally binding and mutually satisfactory documentation• The business being carried out in the ordinary and usual
course, consistent with past practice, and there having been no material adverse change (MAC) in the business, assets or liabilities of the Company
• Obtaining all necessary governmental approvals prior to closing
• Obtaining all necessary corporate (including shareholder) approvals from both parties
MOU
Indicative price
R&W (as of signing & dosing)
Covenant
Corporate governance (or, anti-corporate govt)
Closing conditions (conditions precedent and subsequent)
Exclusivity
Break up fee
Due Diligence
Seller preparation
Information Memorandum (bidding)
Business/financial/legal due diligence
Management dd
Data Room
- Organizational documents
- Financial information
- Business Projection
- Loan files (data tape)
- IT
- Marketing & Sales
- Legal &Regulatory matters
Negotiation
SPA
Closing mechanism and deliverables
R&W
Covenant (to do and not to do)
Earn out
Holdback (R&W)
Escrow/Trust account
Conditions to closing
SHACorporate governance Shareholder level issues
Case Study – 1 (Project Taurus)
台北銀行以標售方式與富邦銀行進行股份轉換 (2003)
台北銀行(上市公司)欲進行併購以增加競爭力
台北市政府公股佔 40%
如果您經委任擔任台北銀行之財務 / 法律顧問 ,
您對本案建議的規劃及執行為何 ?
Taipei Bank led by:
Major SHA led by:
Financial Advisor: Goldman Sachs
Deal Counsel: LCS
Transaction proposals
與金控進行股份轉換 與金控旗下銀行合併 與非金控銀行合併 與證券公司或保險公司共組金控 增資引進財務性或策略性投資人
Execution proposals
與特定對象進行談判採取招標方式
Legal issues
股份轉換時,可否以現金為對價?股東中,可否有人取得 40 %現金、 60 %股份 ,有人取得 40 %股份、 60 %現金?
金控旗下二家銀行雙品牌員工問題處理主要股東於股份轉換後權利的保障
Case Study - 2 (Project Spaghetti)
渣打 (SCB) 公開收購新竹商- the first 100% TO in Taiwan
(2006)
Taiwan Market
Identify target
Business profile of Target
M&A Rationale
Valuation
Proposed offer
Why Hsin Chu? Why SCB? Hsin Chu Commercial Bank exclusive
deal with SCB (NDA)
Transaction team/Integration team
Transaction team
SCB led by
FA: UBS & MS
Deal counsel: LCS (Allen & Overy)
Execution proposal
Regulatory aspect and tax aspect 100 % TOSCB form a sub in Taiwan/Sub merged
with Hsin Chu Bank (Citi/Overseas Chinese bank)
SCB merged Hsin Chu Bank
From March 2006 to Sep 2006TO (9/29/2006): 98+% (TO Rules) General assumption of SCB Taiwan branch
(Financial Merger Act v. Business Merger Act)SCB Taiwan Sub cash share swap with SCB
UK (squeeze out) – Financial Holdco Act
Lead counselSHA lock up by trust arrangementRegulatory approvals (FSC, FTC, FIA)TO prospectusSPA or SHA? (N/A)
Case Study – 3 (Project Tarzen)
Carlyle acquired control of
Ta Chong Bank
(2007)
TCB 決議增資 Rationale:
- Basel II BIS raised to 10%
- Amendment to the Banking Law Article 64 (loss reached up to 1/3 of the capital - cured within 3 months, otherwise taken over by government or suspension of business)
Original plan
GDR via public offering (proposed by an investment bank)
Private placement to PE (proposed by LCS)
Minority or majority?Bidding or one-on-one? PE v. strategic investor
Execution plan
Invitation to selective biddersSubmission of non-exclusive MOU proposed by
investors with indicative price (May 2007)2 weeks ddInvestment by tiers of SPVs for tax reason (v. B
ASEL II Core Principles)Investment limit (max. of 25% by any single in
vestor/exceptions – Banking Act)
SSA and SHA negotiation (July 2007) government approvals (major SHA approv
al/ FIA approval)Closing subject to financing
(Carlyle v. SCB)
Case Study – 4 (Project Tangram)
China Life (Taiwan) acquired Winterthur Taiwan Branch (Switzerland) from AXA
(France) - 2007
Deal Structure
Asset acquisition v. share acquisition
(Art. 4/Art. 27 of Business M&A Law)Spin-off v. General assumption – pros and
cons
Application of laws/government approvalsFinancial Institution Merger Law/ Busines
s M&A Law/Company Law/
Civil Law/Rulings/ExplanationsWhich law governs?
Considerations Timetable of execution Asset Purchase Agreement