Newsletter
AMENDMENT REGARDING PER-MITTED CONSIDERATION IN FINANCIAL INSTITUTION MERG-ERS
Under the current Financial Institutions Merger Act (FIMA), when financial institutions merge, the surviving or newly incorporated entity may only issue its newly issued shares to the share-holders of the dissolved entity as consideration.
Because the protection of the interests of share-holders of a dissolved entity at the time of a merger can be ensured if they are able to obtain consideration equivalent in value to their share-holdings in the dissolved entity, it should be permissible for such consideration to be in the form of shares in other institutions, cash, or other property. Furthermore, if shareholders of a dis-solved entity are not satisfied with the consid-eration offered by the surviving or newly incor-porated entity, they can exercise the right of dissenting shareholders to have their shares bought back by the issuer. Thus the interests of shareholders of a dissolved entity are unlikely to be adversely affected. Accordingly, in October 2005 the Executive Yuan presented draft amendments to the FIMA to the Legislative Yuan. When financial institutions merge, the consideration given to the shareholders of the dissolved financial institution by the surviving or newly incorporated financial institution may be in the form of shares in other institutions, cash, or other property.
Also, when a financial holdings company con-solidates a financial institution in accordance with the Financial Holdings Company Act (FHCA), they could only give shares in consid-eration, not cash. In an October 2005 press re-lease, the Financial Supervisory Commission (FSC) indicated that this restriction may not be reasonable as it creates a barrier to mergers and acquisitions, yet failed to adequately protect the interest of domestic shareholders. Accordingly, the FSC has resolved that consideration for share exchanges by financial holdings companies un-der the FHCA may now be given partly in shares and partly in cash.
In addition, the FSC issued a formal ruling in December 2005 prescribing that (i) the consid-eration for share exchanges conducted by finan-cial holdings companies under the FHCA may now be given in cash; (ii) the consideration given to the shareholders of the dissolved financial institution by the surviving or newly incorpo-rated financial institution for merger under the FIMA may be in the form of shares in other companies, cash, or other property; and (iii) a fairness opinion rendered by an independent expert in respect of the appropriateness of the shares exchange ratio or the payment of cash or other property made to relevant shareholders as the consideration must be submitted to the meetings of the board of directors and share-holders' meetings of relevant participants of share exchange or merger respectively. There-fore, a financial institution may more freely structure an appropriate consideration for a merger or share exchange in the future.