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Insider-trading probe shakes Fu Sheng stock

Shares of Fu Sheng Industrial Co (復盛公司) yesterday dropped to their lowest level in almost two months, shaken by an insider-trading probe that could dampenforeign private equity investors' interest in acquiring local firms.

On Wednesday, prosecutors searched the headquarters of Fu Sheng, the world's top supplier of golf-club heads, and questioned several officials on suspicion of using insider information to profit from the company's planned takeover by US equity fund investor Oaktree Capital Management LLC.

Fu Sheng said in a filing to the Taiwan Stock Exchange on May 9 that Oaktree had offered to purchase at least 51 percent of the company's outstanding shares at NT$37.5 each from the open market during the period ending June 27.

Fu Sheng shares yesterday closed down 1.9 percent to NT$36.2, the weakest since it closed at NT$34 on May 8.

The company denied any wrongdoing yesterday.

"We have made all efforts to prevent any confidential information about the deal from leaking. The company does not have anything to do with any possible illegal transactions made by any individual to make profits using the info," Fu Sheng spokesman Hsiao Chia-shih (蕭家適) told the Taipei Times by telephone yesterday.

The NT$14.42 billion (US$438 million) deal would not be affected by the insider-trading investigation, Hsiao said.

Investigators from Taiwan's Supreme Prosecutors' office said they found the 11.9 percent rally in Fu Sheng's share price between May 7 and May 10 -- ahead of the announcement of the company's sale to Oaktree on May 9 -- suspicious, a statement from the Supreme Court read.

The buyout deal still needs to be approved by the government. It could be the first local buyout by an overseas private equity fund after the Carlyle Group's failed attempt to take over local chip packager Advanced Semiconductor Engineering Inc (ASE, 日月光).

Meanwhile, an analyst warned that the investigation could dampen foreign interest in local firms.

"The insider-trading probes may reduce foreign private equity fund groups' interest in buying Taiwanese companies as the government is sending a clear message that it does not welcome such deals," said Andrew Teng (鄧安瀾), an analyst with Taiwan International Securities Corp (金鼎證券).

The government does not want big companies such as ASE to be delisted from the local bourse following such buyout deals, as Taiwan has become a less attractive market -- compared to Hong Kong -- for local firms to raise funds, Teng said.

On the bright side, foreign investors may applaud the government's determination to crack down on illegal transactions stemming from information leaks -- a common occurrence in the past, Teng said.

Teng added that he did not expect the enforcement to stifle the liquidity-driven momentum of the local stock market as investors remain bullish.

Meanwhile, the Financial Supervisory Commission said yesterday it did not expect the investigation to affect government review of the buyout application.

Commission chairwoman Susan Chang (張秀蓮) said that the government should be able to make a decision by the the end of this month to protect the rights and interests of minority shareholders planning to sell shares through the tender offer.

Chang agreed that the government has grown cautious about foreign private equity firms' buyout offers amid concerns that they could lead to local firms de-listing from the local bourse after acquisition, which would gradually shrink local capital markets.

"Whether or not the company would relist in the local exchange is a decisive factor in the government's review of buyout applications by private equity firms, especially when the targeted companies are heavyweight players in the local market," Chang said.

The financial watchdog said Fu Sheng had visited the commission recently and said the company did not rule out relisting in the domestic exchange.

After all, the private equity buyers that pursue investment returns need a way to take their money back, Chang said.
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