CITIC's GF Securities acquisition may be foiled
By Sun Min (China Daily)
Updated: 2004-09-29 08:48

CITIC Securities' planned acquisition of Guangfa (GF) Securities encountered a major setback yesterday, after two major shareholders of GF united to seize control of the securities house.

Textile trade company Liaoning Chengda Co Ltd announced yesterday that it would increase its stake in GF Securities to 27.3 per cent after buying 34.5 million shares from original shareholder, Meida Holdings.

Jilin Aodong Medicine Industry Group Co Ltd also said that it would pick up 10 per cent of GF, which would raise the stake it holds in the securities firm to 27.14 per cent.

Then the two companies would jointly hold 54.44 per cent of GF which, in addition to a 12.23 per cent share stake obtained by Shenzhen Jifu, a venture company formed by GF employees, makes CITIC's plan to gain control of GF unlikely to succeed, analysts said.

CITIC Securities announced on September 2 the plan to buy stakes in Guangzhou-based GF Securities.

Though CITIC did not elaborate on the amount of shares it intended to buy, market sources said it was eyeing control of GF, or more than 50 per cent of the stake.

Both securities houses are in the top range of the industry. Moreover, GF has been promoting stock options among employees. Therefore, the acquisition plan encountered strong objections from some GF staff, who opposed regulators and CITIC, calling the attempt a hostile one.

Spokespersons of the two securities houses were not available for comment yesterday.

But CITIC Securities expressed the wish earlier this month that negotiations could produce a result within the month.

It even extended an invitation to all shareholders of GF to buy 51 per cent of the rival firm.

Now, however, it will have to rethink about the plan, since the allies of GF - Liaoning Chengda and Jilin Aodong - have already claimed a majority stake.

An analyst with China Securities says that if the attempt to gain control of GF failed, the appeal of the acquisition for CITIC would be greatly diminished.

CITIC's shares ended down 2.09 per cent yesterday at 7.01 yuan (84.70 US cents).

"For CITIC, the core issue is to get control and reallocate the resources the two companies enjoy to improve overall operational efficiency," he said.

If it could not have the majority say, then the restructuring would be difficult. And it would not be worthwhile to buy a minimal stake in a rival company when the stock market is low, he said.

But CITIC's move is regarded by some observers as a rare market-driven acquisition attempt in the domestic securities industry, which is facing troubles in making profits and improving efficiency.

Normally such mergers and acquisitions follow administrative orders, but the market is lacking commercial cases of this nature.

CITIC Securities, a Beijing-based subsidiary of the conglomerate CITIC Group, was the first securities firm to become listed in China, with total assets of 13.7 billion yuan (US$1.7 billion) at the end of June.

GF Securities also boasts total assets of 12 billion yuan (US$1.4 billion), with an extensive network in southern regions.

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