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

A closely watched, trillion-yuan “aircraft carrier”-level brokerage mega-merger is getting closer.

On October 9, Guotai Junan and Haitong Securities both released merger and reorganization-related proposals and trading resumption announcements at the same time. The two companies’ shares are set to resume trading on October 10, which is 8 trading days earlier than the expected time.

According to the latest announcement, this merger will be carried out in the form of a share-swap absorption merger in which Guotai Junan absorbs Haitong Securities. The share-swap ratio between Haitong Securities and Guotai Junan is 1:0.62. For both A-shares and H-shares, the same share-swap ratio will be adopted—i.e., 1 share of Haitong Securities’ A-share/H-share stock can be exchanged for 0.62 shares of Guotai Junan’s A-share/H-share stock.

After the merger is completed, Haitong Securities will terminate its listing and have its corporate legal entity status canceled. After the merger, the company will adopt a new company name.

With the smooth progress of merger and reorganization between the two leading brokerages, the capital market has also moved with it. On October 10, both Guotai Junan’s and Haitong Securities’ A-shares hit the daily limit on resuming trading. By market close that day, Guotai Junan was at 16.17 yuan, while Haitong Securities was at 9.65 yuan.

The reorganization plan has been unveiled, and the new company name will be adopted

According to the merger transaction prospectus released by Guotai Junan and Haitong Securities, this transaction will be structured as a share-swap absorption merger in which Guotai Junan absorbs Haitong Securities—specifically, Guotai Junan will issue Guotai Junan A-share stock to all of Haitong Securities’ A-share exchangeable shareholders, and will issue Guotai Junan H-share stock to all of Haitong Securities’ H-share exchangeable shareholders.

After the merger is completed, Haitong Securities will terminate its listing and have its corporate legal entity status canceled. Guotai Junan’s A-share stock issued for this share-swap absorption merger will be applied for listing and trading on the SSE Main Board, and its H-share stock will be applied for listing and trading on the Hong Kong Stock Exchange Main Board. After the merger, the company will adopt a new company name.

In terms of pricing, this share-swap absorption merger will use market-based pricing for the share exchange, with the same share-swap ratio for A-shares and H-shares. The A-share share exchange price will be determined based on the average trading price of Haitong Securities’ A-share stock over the 60 trading days before the pricing benchmark date, adjusted for ex-rights and ex-dividends, and thus the A-share and H-share share-swap ratio will be determined.

According to the announcement, Guotai Junan’s A-share share exchange price is 13.83 yuan per share, Haitong Securities’ share exchange price is 8.57 yuan per share, and the share-swap ratio between Haitong Securities and Guotai Junan is 1:0.62. Based on this share-swap ratio, Guotai Junan’s H-share share exchange price is 7.73 Hong Kong dollars per share, and Haitong Securities’ H-share share exchange price is 4.79 Hong Kong dollars per share.

In addition, based on this share-swap absorption merger, Guotai Junan plans to issue A-shares to its controlling shareholder, Shanghai State-owned Assets Management Co., Ltd., to raise supporting funds of no more than 100 billion yuan. The controlling shareholder will increase its stake in Guotai Junan shares in a targeted manner at a price based on net assets per share, which is higher than the share price before the trading halt, and it commits that it will not reduce its holdings within 5 years.

Guotai Junan and Haitong Securities are both financial institutions under Shanghai’s state-owned assets system. As of the end of June 2024, Guotai Junan’s total asset scale reached 898.0.6 billion yuan, and it has 37 securities branches, 345 securities outlets, and 25 futures branches in mainland China. Haitong Securities’ total asset scale is 7214.15 billion yuan, with 29 securities branches, 311 securities outlets, 11 futures branches, and 34 futures outlets in mainland China. After the two companies merge, the continuing company’s total assets and net assets will be 16195 billion yuan and 3311 billion yuan, respectively, and both will rank first in the industry.

Regarding the impact of this transaction, Guotai Junan said that the continuing company’s principal business will remain unchanged, and its core competitiveness will be significantly strengthened across multiple aspects, including capital strength, customer base, service capability, and operational management.

What is worth noting is that “Guotai Junan” was formed by the merger of the former Guotai Securities and the former Junan Securities. With this strong alliance between Guotai Junan and Haitong Securities, how the post-merger company will be named has attracted attention from the market.

Tianyancha shows that Guotai Junan applied for registration of more than 20 trademarks on September 8. The names include “Guotai Haitong,” “Haitong Guotai,” “Guotai Junan Haitong,” “Haitong Guotai Junan,” “Haitong Junan,” “Junan Haitong,” “Haitong Guo Junan,” and more. At present, all trademark statuses are “awaiting substantive examination.”

The demonstration effect is highlighted, which may accelerate brokerage M&A

Since this year, policies supporting various mergers and reorganization have been issued in a steady stream. In particular, since the issuance of the “New Articles on the Development of the Capital Market (No. 9)” (“Guo Jiu Tiao”), the CSRC has taken multiple measures to spur vitality in the merger and reorganization market, and the activity level of listed companies’ mergers and reorganization has gradually increased.

At the same time, regulators have clearly stated support for leading brokerage firms to grow stronger by improving through mergers and reorganization. On September 24, the CSRC issued the “Opinions on Deepening Market-Oriented Reforms of Mergers and Reorganizations of Listed Companies,” which mentioned that “support listed securities firms in enhancing their core competitiveness through mergers and reorganization, and speed up the development of world-class investment banks.”

With policy “warm winds” blowing in succession and after Guotai Junan’s absorption of Haitong Securities was officially launched, market expectations for mergers and reorganization in the securities industry have continued to heat up. More and more merger and reorganization cases have emerged within the industry, including “Guolian + Minsheng,” “Guoxin + Wanhe,” “Western + Guorong,” “Zhejiang Merchant + Guodu,” “Huachuang + Pacific,” “Ping An + Founder Zheng,” and others. There are both mid- to small-sized brokerages grouping together for mutual support, as well as leading brokerages forming strong alliances.

Guojin Securities noted that the merger between Guotai Junan and Haitong Securities achieves breakthroughs in two dimensions—among leading brokerage firms and among listed brokerages. Compared with that, the difficulty of the merger is greater. In arrangements involving A/H valuation differences, share-swap ratio, and other terms, it is expected to set an example for the industry and accelerate the pace of industry mergers and reorganization, especially mergers among other leading listed brokerage firms.

Everbright Securities’ analysis said that Guotai Junan’s proposed absorption of Haitong Securities is also a merger among brokerage firms backed by local state-owned assets. After the two companies merge in the future, they will achieve a strong combination. The new company’s overall strength is expected to rise to a leading position among brokerage industry leaders and build a “carrier-level” brokerage in the securities sector. Against the backdrop of regulators guiding the “cultivation of first-class investment banks and investment institutions” and increasing divergence in industry profitability, brokerage M&A and consolidation are expected to enter an acceleration phase.

It is also worth noting that, boosted by policy tailwinds and market sentiment, the A-share market has recently seen a wave of remarkable rally. Brokerage stocks—earning the label “the bull market flag-bearers”—have performed impressively.

Wind data shows that the brokerage index (886054.WI) has gained 39% over the past month. From September 10 to now, the cumulative gains of Tianfeng Securities, CITIC Securities, Guohai Securities, Guoxin Securities, and China Merchants Securities have all exceeded 40%.