Fusion on a Large Scale: Guotai Junan and Haitong on Par with Wall Street

The prominent Chinese brokerage firms Guotai Junan Securities and Haitong Securities have announced the terms of their planned merger. The goal is to create a state-backed securities company with an asset volume of $226 billion to compete against expanding Wall Street firms on domestic soil. This announcement led to a surge in the stock prices of both firms. Under the stock exchange agreement, Guotai Junan will issue A and H shares to the shareholders of the smaller competitor Haitong at a ratio of 0.62 to 1. The offer is valued at 8.57 Yuan in China, representing a discount of 2.3% on Haitong's shares in Shanghai. In Hong Kong, the exchange value is set at 4.79 HK$ per share, a premium of 32%, according to Bloomberg calculations. To strengthen working capital, repay debt, and finance the merger, Guotai Junan plans to raise up to 10 billion Yuan through a share placement by its main shareholder Shanghai State-owned Asset Management. It will issue up to 626.2 million A-shares at a price of 15.97 Yuan each. A year after President Xi Jinping's call to strengthen leading investment banks in China, this merger will create a firm with an asset volume of 1.6 trillion Yuan, making it the largest in the country, surpassing Citic Securities. The merged entity will operate globally in cities such as Hong Kong, Singapore, New York, London, Tokyo, and Mumbai. Upon completion of the deal, Haitong will be delisted from the Shanghai and Hong Kong stock exchanges, and the new entity will commence business with a new name and leadership structure. The merger is subject to the approval of shareholders and regulatory authorities. UBS Group is acting as a financial advisor for Guotai Junan, while DBS Group Holdings is advising Haitong. Past corporate takeovers in China typically took about a year. However, given the rapid merger between Guolian Securities and Minsheng Securities, which took less than a month, analysts from Founder Securities led by Xu Yishan anticipate a speeding up of future mergers. The A-share market in China has reported daily trading volumes exceeding 2 trillion Yuan consistently over the past two weeks, benefiting securities firms in particular. Numerous brokerage houses canceled their Golden Week holiday break to focus on a busy resumption of trading, with enormous customer engagement both online and offline.