Taiwan's Cosmos Bank shares drop after SAC Capital, GE Capital sell stakes

TAIPEI Tue Feb 11, 2014 1:54am EST

TAIPEI Feb 11 (Reuters) - Shares of Taiwan's Cosmos Bank , controlled by SAC Capital and GE Capital, fell to a one-month closing low on Tuesday after China Development Financial Holding Corp agreed to buy Cosmos at a discount to the market price.

The deal marks Taiwan's first bank M&A, or merger-and-acquisition, in six years and the second foreign investor exit from the island's banking sector since TPG Capital Management LP sold its stake in Taishin Financial Holding Co Ltd in 2012.

Global hedge funds and private equity firms have struggled to profit by selling their stakes in Taiwanese banks, which generate some of the lowest returns among Asian peers because of overcrowding and the consequent degree of competition. This has led to calls for consolidation.

"Taiwan banks have to consolidate soon," said Yuanta Financial fund manager Simon Liu. "It's the most effective way for them be efficient at home, so that they can better compete overseas."

The coming together of China Development and Cosmos, along with a government drive to merge state-run banks, could be the beginning of consolidation, Liu said.

Cosmos, whose shares fell as much as 4.5 percent intraday on Tuesday, would become a wholly owned unit of China Development in a deal worth T$23.1 billion ($762.44 million), the pair said late Monday.

The deal, in which Cosmos was advised by Citigroup according to a person familiar with the matter, would mean China Development buying Cosmos shares for 2.6 percent less than the shares' Monday closing price.

Shares of Cosmos closed down 4.2 percent compared with a rise of 1.6 percent in China Development and 0.5 percent in the broader market.

The deal, which is subject to regulatory approval, would entail SAC Capital selling its 57.08 percent stake in Cosmos and GE Capital selling its 22.52 percent stake.

The pair bought their stakes for a combined $900 million in 2007, when Taiwanese banks were forced to write off significant amounts of bad debt during a surge in credit card defaults.

Global fund peer Carlyle Group LP has also struggled with its Taiwan bank investment. It planned to sell its stake in Ta Chong Bank Ltd to Yuanta Financial Holdings Co Ltd in 2012, but was unable to because of disagreement over price.

Longreach Group is also looking to sell its stake in EnTie Commercial Bank Ltd.

Among state-run banks, the government has made it a priority this year to merge Mega Financial Holding Co Ltd with an as yet unspecified rival.