"Guojun + Haitong" restructuring plan finalized, a trillion-dollar "aircraft carrier" brokerage is about to emerge

The highly anticipated “aircraft carrier” of the brokerage industry, valued at trillions, is drawing closer.

On October 9, Guotai Junan and Haitong Securities simultaneously released plans related to their merger and restructuring, and both companies’ stocks are set to resume trading on October 10, eight trading days earlier than expected.

According to the latest announcement, this merger will be conducted via a stock swap in which Guotai Junan will absorb Haitong Securities, with the swap ratio of Haitong Securities to Guotai Junan set at 1:0.62. Both A-shares and H-shares are expected to adopt the same swap ratio, meaning 1 share of Haitong Securities A/H stock can be exchanged for 0.62 shares of Guotai Junan A stock.

After the merger is completed, Haitong Securities will terminate its listing and cancel its legal entity status. The merged company will adopt a new name.

As the merger and restructuring of the two major brokerages progresses smoothly, the capital market is also reacting. On October 10, the A-shares of both Guotai Junan and Haitong Securities hit the daily limit. By the end of that day, Guotai Junan was priced at 16.17 yuan, while Haitong Securities was at 9.65 yuan.

Restructuring Plan Released, New Company Name to be Adopted

According to the merger transaction plan released by Guotai Junan and Haitong Securities, this transaction will involve Guotai Junan absorbing Haitong Securities through a stock swap, where Guotai Junan will issue A-shares to all A-share shareholders of Haitong Securities and H-shares to all H-share shareholders of Haitong Securities.

Once the merger is completed, Haitong Securities will cease its listing and cancel its legal entity status. The A-shares issued by Guotai Junan as part of this stock swap absorption will apply to be listed and traded on the main board of the Shanghai Stock Exchange, while the H-shares will apply to be listed and traded on the main board of the Hong Kong Stock Exchange. The merged company will adopt a new name.

In terms of pricing, this stock swap absorption merger will use market prices for the swap, with A-shares and H-shares expected to adopt the same swap ratio. The A-share swap price for both companies will be determined based on the average trading price of A-shares adjusted for rights and dividends over the 60 trading days prior to the pricing benchmark date, thus determining the swap ratio for A-shares and H-shares.

According to the announcement, the A-share swap price for Guotai Junan is 13.83 yuan/share, while the swap price for Haitong Securities is 8.57 yuan/share, resulting in a swap ratio of 1:0.62 between Haitong Securities and Guotai Junan. Based on this swap ratio, the H-share swap price for Guotai Junan is 7.73 HKD/share, and the H-share swap price for Haitong Securities is 4.79 HKD/share.

Furthermore, on the basis of this stock swap absorption merger, Guotai Junan plans to issue A-shares worth no more than 10 billion yuan to its controlling shareholder, Shanghai State-owned Assets Management Co., Ltd., to raise supporting funds. The controlling shareholder will increase its holdings of Guotai Junan shares at a price above the trading price before the suspension, and has committed not to reduce its holdings for five years.

Both Guotai Junan and Haitong Securities are financial institutions under Shanghai’s state-owned assets. As of the end of June 2024, Guotai Junan’s total asset scale reached 898.06 billion yuan, with 37 securities subsidiaries, 345 securities business offices, and 25 futures subsidiaries in the country. Haitong Securities has total assets of 721.415 billion yuan, with 29 securities subsidiaries, 311 securities business offices, 11 futures subsidiaries, and 34 futures business offices in the country. After the merger, the total assets and net assets of the surviving company will be 1.6195 trillion yuan and 331.1 billion yuan, respectively, both ranking first in the industry.

Regarding the impact of this transaction, Guotai Junan stated that the main business of the surviving company will remain unchanged, significantly enhancing its core competitiveness in terms of capital strength, customer base, service capability, and operational management.

It is worth mentioning that “Guotai Junan” was formed by the merger of the original Guotai Securities and the original Junan Securities. The strong union between Guotai Junan and Haitong Securities has drawn significant market attention regarding what the name of the merged company will be.

According to Tianyancha, Guotai Junan applied for the registration of over 20 trademarks on September 8, including names such as “Guotai Haitong,” “Haitong Guotai,” “Guotai Junan Haitong,” “Haitong Guotai Junan,” “Haitong Junan,” “Junan Haitong,” and “Haitong Guojun,” all currently in the status of “awaiting substantial examination.”

Demonstration Effect Emerges, May Accelerate Brokerage M&A Process

Since the beginning of this year, various merger and acquisition support policies have been intensively rolled out, especially following the release of the “Nine National Measures,” where the CSRC has taken multiple measures to stimulate the vitality of the M&A market, gradually increasing the activity of listed company mergers and acquisitions.

At the same time, regulatory authorities have clearly supported leading brokerages in enhancing their strengths through mergers and acquisitions. On September 24, the CSRC issued “Opinions on Deepening the Reform of the Listed Company M&A Market,” which mentioned, “Support listed securities companies in enhancing their core competitiveness through mergers and acquisitions, and accelerate the construction of first-class investment banks.”

With the frequent “favorable winds” from policies, and the formal start of Guotai Junan’s absorption of Haitong Securities, market expectations for mergers and acquisitions in the securities industry continue to heat up, leading to a constant emergence of merger and acquisition cases in the industry, including “Guolian + Minsheng,” “Guoxin + Wanhua,” “Western + Guorong,” “Zheshang + Guodu,” “Huachuang + Pacific,” “Ping An + Founder,” among others, where both small and medium-sized brokerages are forming alliances and leading brokerages are joining forces.

Guojin Securities pointed out that the merger of Guotai Junan and Haitong Securities breaks through both the leading brokerages and listed brokerage mergers. Compared to others, the difficulty of this merger is greater, and arrangements involving A/H valuation differences and swap ratios are expected to set an example for the industry and accelerate the M&A process, especially among other leading listed brokerages.

Everbright Securities analyzed that Guotai Junan’s planned absorption of Haitong Securities is also a merger of local state-owned brokerages. After the merger of the two companies, a strong union will be achieved, and the comprehensive strength of the new company is expected to rise to the leading position in the brokerage industry, creating a “carrier-level” brokerage in the securities sector. Against the backdrop of regulatory policies guiding the “nurturing of first-class investment banks and investment institutions” and increasing industry profit differentiation, the merger and integration in the securities industry is expected to enter an accelerated period.

It is noteworthy that, with the boost of favorable policies and market sentiment, the A-share market has recently experienced a remarkable upward trend, with brokerage stocks, known as “bull market flag bearers,” performing exceptionally well.

Wind data shows that the brokerage index (886054.WI) has risen by 39% over the past month, with Tianfeng Securities, CITIC Securities, Guohai Securities, Guoxin Securities, and China Merchants Securities all recording cumulative increases exceeding 40% since September 10.