CITIC Securities has failed in a recent takeover attempt of GF Securities, but analysts said the case will provide valuable experience for other securities firms in similar matters in the future.

CITIC Securities, the first securities house to float shares in China, announced yesterday that its attempt to gain at least a 51 per cent stake in GF Securities had not paid off within the set period.

Therefore, its general takeover offer to shareholders of GF, made in September, had expired, the company said. But it also said that it would continue to monitor GF share transactions and did not rule out the possibility of buying stakes in the company again when the market environment was appropriate.

The announcement temporarily ends a six-week-long takeover battle that was fueled by a CITIC Securities' statement at the start of September saying it planned to buy stakes in the Guangzhou-based securities firm.

CITIC said that the plan aimed to increase the competitiveness of the two firms and would enable them to share resources, though it never published details or costing.

The move was regarded as a bold attempt in the securities industry, which has hardly seen any market-driven mergers and acquisitions before, except for a few government-ordered takeovers.

CITIC's plan encountered strong resistance from some GF employees, who objected with open letters and appeals to regulators that the acquisition was hostile, and they feared that their interests would be hurt.

GF Securities has been setting up an arrangement whereby some of its executives and employees would be allowed to hold stakes in the company, which would be affected if it was controlled by another securities firm and restructured, analysts said.

CITIC's negotiations with the major shareholders did not proceed well and its hope of taking control was diminished, especially after two GF shareholders announced at the end of September that they were buying a stake in GF to jointly hold 54.4 per cent.

However, regardless of the result, CITIC's move is still regarded as a watershed in the securities industry in China.

"The meaning of CITIC Securities' attempt to acquire a rival company has outweighed the failure itself," said Liang Jing, an analyst with Guotai & Jun'an Securities.

It is expected to start a new trend in the securities business which, haunted by the underperforming stock market and limited profit resources, is being urged to restructure to improve efficiency, Liang said.

Competition is also becoming more intense as more foreign institutions enter the market and more securities and fund management joint ventures are launched.

Analysts have predicted an increasing number of takeovers in the industry in coming years, as more poor performers are expected to be taken over by stronger ones and even those at the top of the range, such as CITIC and GF, are not 100 per cent secure of maintaining their position.

The shockwave GF felt and the obstacles CITIC encountered during the takeover attempt offered lessons for other firms in the business, especially for those that intend to follow suit, said Liang.

Compared to CITIC Securities, the impact should be more obvious on GF Securities, whose shareholders' structure was changed during the takeover battle, and its operational strategy might be adjusted accordingly.

However, the market mechanism for mergers and acquisitions is undeveloped in China, analysts said, given the lack of information disclosure and relevant laws.

(China Daily October 15, 2004)