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Tatung ignores rumors of hostile takeover action

Tatung Co (大同) shrugged off speculation of a hostile takeover yesterday, saying its share structure was solid and suggesting it would improve corporate governance to create more value for shareholders.

In a filing to the Taiwan Stock Exchange, Tatung said its management had secured support from both domestic and foreign shareholders as well as brokerage houses.

The firm, one of the nation's leading home appliance makers, said it had expanded businesses to non-core areas such as property development, solar wafer and semiconductor manufacturing. It declined to comment on the hostile takeover speculation.

The company's remarks bolstered investors and sent its shares up 7 percent or limit-up to NT$21.40 on the Taiwan Stock Exchange yesterday, outperforming the benchmark TAIEX, which rose 1.93 percent.

"If there's indeed a hostile takeover going on, we believe the current management may be under pressure to accumulate more shares by any means before the [board] election in June," Citi Investment Research analyst Andre Chang (張致竑) wrote in a client note released yesterday.

Tatung is scheduled to hold its annual general meeting and the board of directors election on June 11, it said in another filing to the stock exchange yesterday.

The management, led by chairman Lin Wei-shan (林蔚山), holds at 20.7 percent share of the company, with 11 percent of those stakeholdings held through several family investment vehicles.

"Control of these investment vehicles could be threatened by other family members," Chang wrote in his note.

The potential boardroom fight came to public attention after Chunghwa Picture Tubes Inc (中華映管), a Tatung subsidiary and the nation's third-largest flat panel maker, said it had continued to acquire shares of its parent company between March 10 and yesterday, triggering rumors that Tatung was acting to defend itself through share purchase by its subsidiary.

Since March 10, Chunghwa Picture has bought 86.79 million Tatung shares for NT$1.73 billion (US$56.4 million). As of yesterday, Chunghwa Picture held 165.53 million Tatung shares, or a 3.69 percent stake in its parent company, a stock exchange filing showed.

Shares of Tatung have risen 15.68 percent since March 10, while shares of Chunghwa Picture were down 3.39 percent over that same period to close at NT$10 yesterday.

Chunghwa Picture said in its stock exchange filing that the share purchases -- which made it the third largest shareholder of Tatung -- were for short-term investment only.

But speculation that a family feud could escalate into a boardroom fight has been circulating for a while, with the media reporting that some members of the Tatung owner's family were willing to work with outside investors to take control from Lin Wei-shan.

Outside investors are reportedly interested in Tatung because of its holdings in subsidiaries such as Chunghwa Picture, Green Energy Technology Inc (綠能科技), the nation's top solar silicon wafer maker, Elitegroup Computer System Co (精英電腦), one of the nation's leading computer motherboard makers, and San Chih Semiconductor Co (尚志半導體).

They may also be interested in Tatung's massive land holdings, Chang said, since the company began turning its old factory sites into property development projects in recent years.

One of Tatung's residential projects in Nangang (南港), Taipei City, was launched last month at NT$800,000 per ping. If successful, it could earn NT$5 billion for the company, Tatung has said.

“Property development revenues will become the main driver of earnings beginning in 2008,” Chang wrote in the note.
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