Yuanta Financial (2885.TW) has pulled out of talks on a deal worth up to $1.25 billion to buy Carlyle Group-backed Taiwanese bank Ta Chong (2847.TW), dealing a blow to the private equity fund's hope to exit its Taiwan investment for a profit.
Reuters reported last Friday that Carlyle was in talks to sell its stake in the small and slow-growing Ta Chong to Yuanta in a T$15-T$17 per share deal that could fetch T$37 billion ($1.25 billion). The deal would also have given Carlyle a 7 percent stake in the fast-expanding Yuanta.
Carlyle has struggled to get the returns it wanted from the investment in the competitive and fragmented Taiwan banking market. The return on assets from banks in Taiwan in 2011 was 0.53 percent, the lowest among banks in Asia excluding Japan.
Global economic uncertainty and a wobbly Taiwan stock market conspired against the deal, analysts said.
"The timing is not on Carlyle's side. T$15-T$17 a share would be reasonable in normal times in terms of price to book and premium, but the recent sluggishness of global markets, especially Taiwan, has made it difficult for Yuanta to offer the price," said the head of propriety trading at a state-run brokerage.
"Carlyle is in a hurry to exit Ta Chong, so are other global private funds. If they want to exit for a profit, they will have to wait," he said, asking for anonymity because he is not authorized to speak to media.
Yuanta Executive Vice President Y.D. Chuang said on Friday the company has ended the talks with Carlyle but declined to elaborate. Carlyle declined to comment. A Ta Chong spokesman said he was not aware of the matter.
Shares of Ta Chong slid by the maximum 6.8 percent allowed on Friday to T$10.95 in a broader market .TWII down 0.75 percent. They had reached a high of T$13.50 in March this year.
Yuanta shares rose 1.2 percent.
A separate Yuanta official, speaking on condition of anonymity, said Ta Chong was a good bank, but the deal price and the global market outlook were the main reasons the talks had ended.
Carlyle bought a 35 percent stake in Ta Chong in 2007 for T$21.5 billion, part of a wave of private equity interest in Taiwan's banking sector, which was then rebuilding following problems with credit card bad loans.
Sources told Reuters in April that the private equity firm had hired J.P. Morgan to dispose of its holding, now around 40 percent, and had been trying to enlist other shareholders to sell a controlling stake.
Under the planned deal, Carlyle and Ta Chong's other major shareholder, the bank's founding Chen family, would have swapped their combined holding of about 70 percent for Yuanta shares.
Taiwan newspapers reported on Friday that the parties could not agree on a swap ratio. The reports also said Fubon Financial (2881.TW), one of Taiwan's largest financial firms, had done due diligence on Ta Chong. Fubon said in a statement it would not comment on the reports.
UNLUCKY FOR LONGREACH?
The collapse of the deal also bodes ill for rival private equity firm Longreach, which is looking to sell its holding in another small Taiwanese bank, Entie Commercial Bank (2849.TW).
A source told Reuters last week that Longreach was looking for T$30 a share, which would value any deal at about $1.2 billion. Entie shares rose 1.3 percent to T$11.85 on Friday.
Another fund manager said Carlyle would have to wait for a turnaround in global markets.
"Carlyle is not willing to sell its stake at a loss. It will have to delay the timing for the planned sale," said the chief investment officer of a European-based fund house.
"Until when? It all depends on when the stock market improves," the executive said, declining to be identified due to the sensitivity of the matter.
The failed bid is also a setback to Yuanta's plans to refocus on Taiwan, its home market, as efforts to tap the Chinese market have not been productive due to the slow progress on cross-strait banking ties.
"The bid would have been a plus for Yuanta," said the propriety trading chief.
Yuanta has cut staff at its Shanghai office and at some Hong Kong operations, and has yet to set up any China business of its own.
Buying Ta Chong would have given it a branch network in Taiwan to boost its own very small one, while it continues to expand.
Local media have reported Yuanta is also looking to buy either of the Taiwan insurance units of Canada's Manulife and New York Life NYL.UL, both of which are currently on sale.
It has also been linked with the acquisition of a small local broker.
This article is copyrighted by Reuters
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