As private equity firms launch buyouts across capital markets worldwide, the nation's financial regulator reiterated at the weekend that it does not welcome hostile takeover attempts of local companies.
Pundits also warned that money laundering may be conducted through private equity firms due to their lack of financial transparency.
The Financial Supervisory Commission (FSC) is open-minded with regards to foreign private equity funds and welcomes their investment if the benefits outweigh the economic and social costs, and minor shareholders and employees are protected, commission Chairman Hu Sheng-cheng (胡勝正) said.
Benefits may include improvements in operational efficiency and increased global recognition, while disadvantages may include a weakened capital structure of takeover targets in the case of leveraged buyouts and a lack of transparency, he said.
Hu made the remarks during a forum organized by the Taiwan Thinktank (台灣智庫) on Saturday on how Taiwan should react to the booming merger and acquisition activity by private equity firms.
The FSC does not like hostile takeover attempts, and there is no exception with international private equity funds, whose capital flows are even harder to track, said Wu Tang-chieh (吳當傑), director general of the commission's Securities and Futures Bureau.
watching
The market watchdog will keep a close eye on areas like transparent disclosure, financial structure and the legality of transactions when private equity firms invest in local companies in the future, Wu said.
Last year, statistics by Thomson Financial showed that a buying spree doubled the value of acquisitions launched by cash-rich private equity firms globally to a record US$700 billion, when compared to the previous year, or 20-fold the value 10 years ago.
As Asian markets become more attractive to foreign investors, Taiwanese firms have become the targets of these funds, with Carlyle Group last year offering to buy Advanced Semiconductor Engineering (ASE, 日月光半導體), the world's largest chip packager, for a record US$5.46 billion. The deal fell through last month due to disagreements over price of the bid.
uninterested
Former FSC chairman Shih Jun-ji (施俊吉) said that to date private equity funds have not really been interested in local companies, with only a combined investment of US$5.5 billion in Taiwan, compared to the US$158 billion invested by the funds in the region as a whole.
Almost 70 percent of the investment went to the cable television and media sector, and the firms now exercise control over as many as 75 percent of cable television subscribers, said Shih, who became one of the government-appointed directors at Taiwan Television Enterprise (
Also, due to a lack of transparency, it is possible for the management or major shareholders of publicly traded companies to cooperate with private equity firms and use them as a channel for money laundering, bypassing government supervision, he warned.
In order to prevent controlling shareholders' unilaterally agreeing an offer price in a leveraged or management buyout deal, that could compromise minority shareholders' rights and interests, the regulator has proposed an amendment to the Business Mergers and Acquisitions Act (企業併購法).
The proposed amendment would require major shareholders or corporate managers to avoid conflicts of interest and to render the right to negotiate a bid price to minor shareholders, Wu said.
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