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Ruen Chen the Safest Bet for Nan Shan Buyout

  • Huang Tsung-yuan and Staff Reporter
  • 2011-01-13
  • 19:35 (GMT+8)
AIG and Taiwan's Financial Supervisory Commission view Ruen Chen as a safe choice to buy Nan Shan. Picture: Looking out the office at Nan Shan Life Insurance Co. (Photo/Wang Yuanmao)

AIG and Taiwan's Financial Supervisory Commission view Ruen Chen as a safe choice to buy Nan Shan. Picture: Looking out the office at Nan Shan Life Insurance Co. (Photo/Wang Yuanmao)

To the surprise of many observers, American International Group (AIG) announced Jan. 12 that it has signed an agreement to sell its 97.57% share in its Taiwanese insurance arm, Nan Shan Life Insurance Co, to Ruen Chen Investment Holding Co for US$2.16 billion in cash, barely two days after Taiwan's Financial Supervisory Commission (FSC) issued a statement expressing support for local financial holding firms bidding for Nan Shan.

However, despite not being a financial firm, Ruen Chen finally won the bid to acquire Nan Shan and its acquisition introduces no sudden or unwelcome changes in Taiwan's financial holding sector.

It is undeniable that it would have been easier for the FSC, Taiwan's top financial regulator, to supervise the insurance company if one of the nation's three largest financial holding firms, Cathay Financial Holding Co, Fubon Financial Holding Co and and Chinatrust Financial Holding Co, all of which tendered bids for Nan Shan, had won.

However, it would also have caused some problems.

For instance, Cathay Financial Holding Co, which owns Cathay Life Insurance Co, is already a major company. A successful Cathay bid would certainly have triggered an antitrust controversy because the financial company would have become even bigger than its rivals.

On the other hand, if Fubon, which had acquired ING Life Taiwan after the global financial crisis to become a major player in Taiwan's life insurance industry, had won the bid, it could have faced opposition from Cathay.

Moreover, if Fubon had had acquired two life insurance companies one after the other, its ability to integrate the two acquisitions would have been called into question.

Finally, if Chinatrust, which does not have any insurance company affiliate, had emerged as the bid winner, it would put the company on an equal footing with Cathay and Fubon. If Chinatrust had won however, the FSC would probably have been accused of helping Chinatrust make profits.

In other words, if Nan Shan had been sold to any of the three financial holding firms, it would have casued increased competition between them.

In comparison, the sale of Nan Shan to Ruen Chen makes life easier for everybody because Ruen Chen has solid financial strength and the acquisition is unlikely to change the landscape of the financial holding sector.

In addition, the deal allows AIG, which has been plagued by labor disputes, to breathe a sigh of relief since Ruen Chen has promised to maintain the current salaries and benefits of Nan Shan's employees. It has also promised to set aside NT$10-20 billion (US$345m-790m) in pension funds.

Now, after two years of surprising twists and turns, the sale of Nan Shan has finally been concluded.

In fact, Ruen Chen seemed almost certain to win the bid a little before Christmas last year.

In August 2010, there had been rumors that AIG was not in a hurry to sell Nan Shan because the global financial crisis had receded, even after the Investment Commission under the Ministry of Economic Affairs had rejected the sale of Nan Shan for US$2.15 billion to Primus Financial and China Strategic Holdings on Oct. 13, 2009.

However, the rumors proved to be untrue the following month as AIG implied in its financial report that it planned to sell off its Taiwanese business and would therefore re-initiate the sale process of Nan Shan.

On Dec. 3, 2010, after the deadline for inviting offers to buy the Taiwanese insurance company expired, AIG decided on Ruen Chen, a Ruentex Group-led consortium, as its top choice based on the fact that this could avoid competition among leading financial holding companies, even though Ruen Chen's US$2.16 billion bid was lower than the amount offered by some of the other bidders.

References:

Ruen Chen Investment Holding Co 潤成投資控股公司

Cathay Financial Holding Co 國泰金融控股股份有限公司

Fubon Financial Holding Co 富邦金控

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