China Life shares soar on acquisition offer

Taipei-Shares of China Life Insurance Co. jumped on heavy trading Monday after China Development Financial Holding Co. announced last week that it will launch a tender offer to acquire a 25-percent stake in the life insurer at an almost 15-percent premium, dealers said.

Shares of China Development Financial also moved higher on hopes that the acquisition will complete the suitor's product line by including the life insurance business, the dealers said.

Shares of China Life rose 8.21 percent to close at NT$32.95 (US$1.08) after hitting its 10 percent maximum increase of NT$33.45, with 85.14 million shares changing hands on the Taiwan Stock Exchange, where the weighted index ended down 0.07 percent at 10,289.91 points.

Shares of China Development Financial gained 2.16 percent to close at NT$8.51, off an early high of NT$8.81, on trading volume of 87.67 million shares.

"Investors were impressed by the acquisition price proposed by the suitors so that they chased China Life shares soon after the local equity market opened," Hua Nan Securities analyst Kevin Su said.

China Development Financial announced on Friday that its board of directors approved a proposal to launch a tender offer to acquire an up to 25.33-percent stake in China Life at NT$35 per share, which represented a 14.94-percent premium over the life insurer's closing price of NT$30.45 in the last trading session of last week.

The acquisition, which is expected to cost China Development Financial NT$30.8 billion, is pending regulatory approval. The suitor said that it has anticipated that the tender offer will be completed by the end of September.

KGI Securities, one of the subsidiaries of China Development Financial, currently owns a roughly 9-percent stake in China Life. After the acquisition deal, China Development Financial is expected to hold a 35-percent stake in China Life and become the largest shareholder of the life insurer.

At present, China Development Financial is sitting on about NT$20 billion in disposable funds, so the acquisition deal is expected to help the company make better use of its capital, the company said. In addition, KGI Securities will cut its capital size to contribute about NT$5 billion to finance the acquisition, while the parent company will seek to issue bonds for the buy-in deal.

After the acquisition, China Development Financial's total net worth will increase to NT$217.9 billion from the current NT$165 billion to rank as the sixth-largest financial holding company in Taiwan.

"More importantly, the acquisition is expected to help China Development Financial expand to the insurance business and go beyond the current banking and securities business and eventually boost its competitiveness in the local financial market," Su said. "As a result, investors hailed the deal by picking up the stock today."

However, the two stocks failed to sustain their initial strength and came off their highs in line with the broader market, which was haunted by fund outflows at a time of a rate hike cycle administered by the U.S. Federal Reserve, Su said.

Source: Overseas Community Affairs Council