Summary of Key Points
Guotai Haitong (formed by the merger of Guotai Junan and Haitong Securities) plans to acquire the remaining approximately 26.1% stake in Guotai Junan International for HK$3 per share in cash, through an “agreement arrangement.” Guotai Junan already holds 73.9% of the shares, so this move will privatize Guotai Junan International and remove it from the Hong Kong Stock Exchange (HKEX). The acquisition will cost approximately HK$7.5 billion, which has been raised through external financing. The offer price represents a 44.2% premium over the last trading day’s price, making it very attractive to minority shareholders. The objectives behind this move include improving management efficiency, integrating overseas resources, accelerating the internationalization strategy, and fulfilling the commitment made during the merger to address potential competition.
I. Basics of the Privatization: How much does it cost? What is the process?
- What is privatization? Simply put, it’s the process of turning a publicly traded company into a “private company” that is 100% controlled by its owners and no longer traded on the stock market.
- Price and costs: The acquisition price is HK$3 per share. Guotai Junan International has a total of 9.53 billion shares, with Guotai Haitong already holding 73.9%. The remaining 26.1% (about 2.487 billion shares) will cost approximately HK$7.5 billion (24.87 billion × HK$3 per share). The funds for the acquisition have been secured through external financing, so there are no financial concerns.
- Process steps: The privatization must go through several approvals, including from the National Development and Reform Commission and the Shanghai State-owned Assets Supervision and Administration Commission. It also requires the approval of Guotai Junan International’s shareholders and final approval from a Hong Kong court before it can be completed.
II. Have minority shareholders benefited? Is the price reasonable?
- The premium is substantial: The HK$3 per share is 44.2% higher than the last trading day’s price of HK$2.08, 46.5% higher than the average price over the past 30 days, and 37.7% higher than the average price over the past 90 days. Industry experts consider this premium rate to be above the median for privatizations in Hong Kong in recent years, indicating a reasonable offer.
- A more favorable price-to-book ratio: Using the HK$3 per share to divide by Guotai Junan International’s net asset value (price-to-book ratio), the result is 1.8 times, while the median price-to-book ratio for similar Hong Kong securities firms is only 0.51 times (with an average of 0.52 times). This means that minority shareholders are getting a much better return on their investment compared to what they would have received if they sold their shares on the market.
III. Why privatize? What are the benefits for Guotai Haitong?
- Improving management efficiency: After privatization, Guotai Junan International will become a wholly-owned subsidiary, allowing Guotai Haitong to directly control its operations and resource allocation without having to consult with other shareholders, thus making decision-making faster. Major international investment banks like Goldman Sachs and Morgan Stanley use a single entity structure for more efficient management.
- Integrating overseas resources: Guotai Haitong aims to become a world-class investment bank and needs to consolidate its overseas operations. Privatization will enable it to better manage the capital of its overseas subsidiaries, enhance risk resistance, and improve cross-border business collaboration (e.g., by integrating domestic and international customer services) to compete more effectively globally.
- Performance support: Guotai Junan International’s performance in 2025 was excellent: revenue increased by 41% to HK$6.23 billion, and profits increased by 287% to HK$1.345 billion. The privatization is not due to poor performance but rather a strategic need for growth.
IV. An additional hidden reason: Addressing competition after the merger
When Guotai Junan and Haitong Securities merged, they committed to resolving potential competition issues among their overseas subsidiaries within 5 years (e.g., avoiding customer competition between their respective overseas businesses). With the privatization of Guotai Junan International, Guotai Haitong can integrate it with its other overseas subsidiaries and completely eliminate such competition, fulfilling that initial commitment.
In summary
This privatization is beneficial for all parties: minority shareholders receive a high premium for their shares, Guotai Haitong can advance its internationalization strategy more effectively, and it resolves the historical issue of competitive overlap between the merged companies. Overall, it represents a strategic move towards long-term growth.