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$1 563bn
 CAGR (compound annual growth rate) 2002 – 2006
 P&C: 3.0%
 Life: 15.3%
 Estimated CAGR 2006 – 2016 (Swiss Re)
 P&C: 4.4%
 Life: 6.6%
FSC Reform:
Risk-Based Capital System
Relax overseas investment
Adopt negative listing
Banking Industry
As of June 30, 2007:
 47 domestic banks (including 74 foreign banks); 31 savings
banks and 278 farmers’ and fishermen’s associations.
 14 Faces with 14 banks, 14 securities firms, 7 insurance
companies
 Market share: Top 5 accounted for 38%; top 10 accounted for
63%; 26 banks less than 2%; The Bank of Taiwan (9.85%);
proposed Taiwan FHC (18% in lending and deposit)
 Capital strength
11.00
10.80
BIS ratio
10.75
10.75
10.67
10.63
10.60
10.40
10.40
10.20
10.07
10.00
9.80
9.60
BIS ratio%
2000
2001
2002
2003
2004
2005 June
10.75
10.40
10.63
10.07
10.67
10.75
• BIS: 10.11 (Dec. 2006)
• BIS: 10.62 (June 2007)
Assets and net worth
900
65
773
800
60
719
700
670
659
630
55
asset(US$bil.)
600
net worth(US$bil.)
500
50
48
48
48
400
45
43
44
300
40
200
Asset
0
30
2000
2001
2002
Year
* 2007: The total assets reached US$850 billion.
2003
2004
Net worth
35
100
Asset Quality
45%
12%
40%
10%
35%
Coverage ratio
NPL ratio
Trend of NPL ratio & Coverage ratio
30%
8%
NPL r at io
25%
6%
20%
15%
4%
10%
2%
5%
0%
0%
Q4.2001
Q4. 2002
Q4. 2003
Q4. 2004
Jul. 2005
• NPL: 11.76﹪ in 4/2002; 2.87％ in 7/2005; 2.13% in 2006;
2.32% in 6/ 2007; coverage ratio: 58.53% in 2006; 55.14% in
6/2007
Cover age r at io
Profitability
ROA, ROE in recent 5 years
ROE
ROA
12
1.2
10
10.30
8
6
4
2
1.0
0.8
0.61
6.04
0.47
3.61
0.26
3.50
0.21
0.6
0.4
0.2
0
0.0
-2
-0.2
-4
-0.47
-6
-8
-0.4
-0.6
-7.35
ROA : from -0.47% in 2002; 0.61% in 2004; 0.17% in 7/2007
ROE : from -7.35% in 2002; 10.3% in 2004; 2.76% in 7/2007
-0.8
Profitability
7/2007 ROA: 0.17% (international
average > 1%)
7/2007 ROE: 2.76% (international
average: 15~20%）
2004 Revenue: 78% from loan
(international average: 40%)
0.0%
ROA
Kookmin Bank
1.47%
DBS Bank
Industrial and
Commercial Bank of
China
Mizuho Financial
Group
HSBC
1.0%
Taipei Fubon Bank
1.5%
ICBC
Near Term
Target
China Trust
1.87%
TaishinBank
Cathay United Bank
Comparison with Other Banks
2.5%
Dec 31, 2004
LT Target
2.01%
2.0%
1.43%
1.38%
1.06%
0.88%
0.62%
0.5%
0.49%
0.05%
As of June 2007
• Cathay Bank: 0.35%
• Taishin Bank: 0.36%
• Chinatrust: 0.83%
• Mega Bank: 0.35%
• Taipei Fubon: 0.35%
0%
10.63%
Kookmin Bank
23.50%
Mizuho Financial
Group
25.05%
DBS
5%
Industrial and
commercial Bank
of China
30%
HSBC
TaipeiFubon Bank
ICBC
23.12%
TaishinBank
China Trust
25%
Cathay United
Bank
35%
ROE
Dec 31, 2004
28.80%
23.20%
19.71%
20%
16.57%
15%
11.20%
10%
1.70%
As of June 2007:
• Cathay Bank: 5.6%
• Taishin Bank: 7%
• Chinatrust: 17.16%
• Mega Bank: 4.18%
• Taipei Fubon: 5.1%
0
76
48
47
First Bank
107
Kookmin
Bank
1,277
Mizuho
Financial
Group
DBS
800
Industrial and
commercial
Bank of China
1,400
HSBC
54
Hua Nan
Bank
62
Land Bank
Taiwan
Cooperative
Bank
200
Bank of
Taiwan
Asset
Dec 31, 2004
US$bil.
1,296
1,200
1,000
685
600
400
177
Taiwan FHC
Asset: US$159 billion (No.89 worldwide;
18 in Asia; exceeding top 3 banks in
Singapore)
Branch: 308
Overseas operation:16
Market share: 18% in both lending and deposit
market
Banking Consolidation
21
Financial Reforms in 2002
July 2002: two-year Financial Reform Plan
focused on NPLs
increase the competitiveness of financial
institutions
establish an integrated financial supervisory
body to supervise financial institutions
Single Financial Regulator
FSC was established on July 1, 2004
Single 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
 MOF
taxation, fiscal policy, budget, management of government
owned shares
 CBC
monetary 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
Bank
• Chiao Tung Bank merged ICBC
• Chinatrust Bank merged Grand Commercial
Bank
From 2005 to 2007
SCB tender offered Hsin Chu Bank
Long Reach acquired 51% of Entie Bank
Carlyle acquired 25% of Ta Chong Bank
MS' minority stake in Chinatrust and ESun
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 allocation
Investment by FHC (allow 5% investment by
FHC, subject to implementation of the M&A
plan approved by the FSC)
Amended the tender offer rules
100% 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
year
For banks, no capital reduction is allowed
for BIS below 12%
After the reform:
10% BIS plus 6% tier one capital
Potential excess cash: NT$144 billion (14
FHC)
Investments by FHC
Financial Holdco Law
FHC 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 days
No squeeze-out rule (SCB integration)
70% acquisition of shares triggers delisting (?)
No prior approval from FSC required
Prior 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
offeree
FSC’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 nonbinding)
 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
FＡ
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 dd
Cross-border tax planning and
execution
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
SHA
Corporate 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 % TO
SCB 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 2006
TO (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 counsel
SHA lock up by trust arrangement
Regulatory approvals (FSC, FTC, FIA)
TO prospectus
SPA 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 bidders
Submission of non-exclusive MOU proposed by
investors with indicative price (May 2007)
2 weeks dd
Investment by tiers of SPVs for tax reason (v.
BASEL II Core Principles)
Investment limit (max. of 25% by any single
investor/exceptions – Banking Act)
SSA and SHA negotiation (July 2007)
government approvals (major SHA
approval/ 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 approvals
Financial Institution Merger Law/
Business M&A Law/Company Law/
Civil Law/Rulings/Explanations
Which law governs?
 Considerations
 Timetable of execution
 Asset Purchase Agreement