| Summary: | 碩士 === 銘傳大學 === 風險管理與保險學系碩士班 === 94 === On August 12th of 2002, Cathay Financial Holdings merged with United Bank, which was the biggest merger and acquisition in Taiwan at that time. Because the target company (United Bank) was originally a state-owned bank with great achievements, the merger not only deeply influenced the development of Cathay Financial Holdings, but also was a special event in the history of financial reforms in Taiwan.
While there has been a study about the merger, the researcher wrongly estimated the model and made inappropriate assumptions. This article reevaluates the merger by using event study methodology and long financial indicators. The findings are as follows:
1. The merger of Cathay Financial Holdings and United Bank supports “Synergy Hypothesis” and disproves “Hubris Hypothesis”. Notably, the market anticipated that the merger would make a premium and investors bought stock to make the stock price rise before being announced.
2. For Cathay Financial Holdings, there is no phenomenon of “Winner’s Curse”. For United Bank, because there was no “Protection Provision” in the contract to prevent the loss of shareholders’ return due to the fall of Cathay’s stock price, the shareholders’ return on the sell date was less than on August 9th due to the fall of Cathay’s stock price.
3. Cathay Bank merging with United Bank is an example of a small bank acquiring with a big bank, and of a bank with poor performance merging with a bank with great performance.
4. The study finds evidence that the merger created wealth for Cathay Financial Holdings three years later according to certain financial indicators. The evidence in this paper confirms the market valuation during the merger.
5. The merger made Cathay Financial Holdings the biggest holding company in Taiwan and rapidly expanded bank concentration to create wealth. For Cathay Financial Holdings, this merger was an adequate strategy.
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