Jiangsu 11.5b yuan brokerage merger marks new phase of consolidation
Soochow Securities to acquire a US$1.7 billion stake in rival Donghai as it looks to boost its assets and market position
China’s second-largest provincial economy is accelerating the integration of its financial sector, with a proposed merger between two state-owned brokerages in Jiangsu highlighting a new phase of regional consolidation.
In a filing on Tuesday, Shanghai-listed Soochow Securities disclosed plans to acquire an 83.68 per cent stake in NEEQ-listed Donghai Securities for 11.52 billion yuan (US$1.7 billion), revealing the valuation and financial ramifications of the deal for the first time since it was announced in March.
The transaction valued Donghai at 13.77 billion yuan, implying a price-to-book ratio of about 1.4 times and a premium of roughly 40 per cent to the target’s net assets. The valuation is above the sector median and sits near the upper end of the range at which many listed Chinese brokerages trade. Donghai’s implied valuation is also well above Soochow’s own price-to-book ratio of about 0.9 times.
Soochow’s share price fell 4.04 per cent on Wednesday and closed at 7.61 yuan, below the 9.46 yuan issue price for the roughly 1.14 billion new shares the company plans to use to fund most of the acquisition.