HONG KONG: Haitong Securities, the mainland's second largest brokerage by assets, has agreed to acquire a majority stake in Hong Kong's Taifook Securities Group Ltd in the first such takeover by a mainland securities house in Hong Kong.

Hai Tong (HK) Financial Holdings Ltd, Haitong's Hong Kong unit, will acquire 52.86 percent of Taifook Securities from NWS Holdings Ltd for HK$1.8 billion, according to a statement filed with the local stock exchange yesterday.

The offer values Taifook at HK$4.88 per share, representing a premium of 2.3 percent to its closing price of HK$4.77 on November 13, its last trading day before being suspended from trading.

Hai Tong (HK) is obliged to make a similar buyout offer to other shareholders of Taifook Securities under local market regulations.

The total purchase cost could reach as high as HK$3.45 billion if all other shareholders accept the offer.

However, Haitong said it hoped to maintain Taifook's listing status after the completion of the deal, indicating that it did not intend to own 100 percent of Taifook.

Hai Tong (HK) said it viewed the Hong Kong market to be very important to its international expansion strategy.

"The acquisition offers a unique opportunity for Hai Tong (HK) to establish a sizeable customer base and distribution network in Hong Kong," the company said in a statement.

"Hai Tong (HK) can fully utilize Taifook's strong network and reputation to provide diversified financial services to customers in Hong Kong. At the same time, Hai Tong (HK) can combine its own strengths in its securities, brokerage and asset management businesses with Taifook's comprehensive product offering and expertise to enhance Hai Tong (HK)'s own financial products and services for its customers," it added.

Meanwhile, NWS Holdings, a subsidiary of Hong Kong property developer New World Development Co, said the move to dispose of its stake in Taifook is part of its strategy to refocus efforts and resources on other stably-growing businesses such as infrastructure.

Market watchers generally believe that the deal is favorable to both sides and is valued reasonably.

"Haitong is paying a reasonable price for a strategic acquisition. The offer, which prices Taifook at 1.8 times its book value, is not expensive," said Mark To, associate director at Prudential Brokerage.

Kingston Lin, director at OSK Securities Hong Kong Ltd, agrees that Haitong is making a good buy.

"Taifook is a well-established securities house in Hong Kong. It holds various business licenses and has quite large a client base. Haitong can't achieve the same operational scale (in Hong Kong) on organic growth in a short period of time," he said.

Haitong currently has only a small operation in Hong Kong, he said.

He believes that the offer is also favorable to shareholders of Taifook.

"The offer price represents a big premium to Taifook's share price before reports about the buyout came out," Lin said.

Taifooks shares were trading at around HK$3.0 per share when buyout reports initially surfaced early this month. The stock surged on the buyout reports and closed at HK$4.77 on November 13 before being suspended from trading on November 16.

Taifook's stock price may fall back if the deal does not get pushed through, Lin said.

Taifook shares resumed trading yesterday and closed the day at HK$4.80, up only HK$0.03, or 0.63 percent, from its previous closing price of HK$4.77.

(HK Edition 11/24/2009 page4)