CTBC Declines on $1.4 Billion Acquisition Drive: Taipei Mover

CTBC Financial Holding Co. fell in Taipei trading after announcing the acquisition of Taiwan Life Insurance Co. and Japan’s Tokyo Star Bank Ltd. for about $1.4 billion as it seeks to diversify and expand abroad.

Shares in the island’s fourth-largest financial firm by market value fell 2.5 percent to a one-month low of NT$19.40 at 11:15 a.m. Taiwan Life rose 1.2 percent to NT$26.40, while the benchmark Taiex index slipped 0.5 percent. Tokyo Star isn’t publicly traded.

At about two times the insurer’s book value, the NT$26.6 billion ($904 million) acquisition is expensive compared with similar deals, according to Fan Wen-Yen, a banking analyst at KGI Securities in Taipei. The purchase of the first life insurer established in Taiwan will give CTBC access to 870,000 clients on the island of 23 million people.

“TLI may have a legacy book with high liability costs as it has been in operations since 1947, so this deal could expose CTBC to greater earnings/book value volatility,” Vincent Chang, an analyst at Goldman Sachs Group Inc., wrote in a note. The purchase will allow the firm to develop new products, “strengthening its leadership in wealth management,” he wrote.

The valuation of the all-share purchase of 100 percent of Taiwan Life, given by CTBC yesterday, is based on a reference share price of NT$19 for the acquirer. CTBC also agreed to buy 98 percent of Tokyo Star Bank Ltd. for 52 billion yen ($529 million) in cash.

“Getting a life insurance business could dilute what CTBC is good at” because returns may be lower, Jerry Yang, an analyst at Daiwa Capital Markets Hong Kong Ltd., said by telephone. “Global investors generally prefer pure insurers or pure banks, it’s better not growing their life arm too big.”

In buying the Japanese lender, CTBC Financial follows competitors in expanding outside a home market where competition has squeezed lending margins to the second-lowest in Asia Pacific. Bloomberg News reported the planned acquisition in July, with two people with knowledge of the matter saying it’s the first takeover of a Japanese commercial lender by a foreign bank.

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