The Investment Commission this week is expected to review a controversial deal proposed by private equity fund Orion Investment Co (遨睿投資) to acquire Yageo Corp (國巨) after the nation’s financial regulator raised concerns over a plan to delist the nation’s top passive component maker once the transaction is completed.
The Financial Supervisory Commission (FSC) on Friday turned over a report detailing its concerns to the Investment Commission, Financial Supervisory Commission Secretary-General Lin Tung-liang (林棟樑) said by telephone yesterday.
The FSC questioned the appropriateness of delisting Yageo from the local bourse given the company’s weight in the technology sector and the likelihood that its capital base would be weakened based on the buyer’s financing plan.
The Investment Commission, under the Ministry of Economic Affairs, must reach a conclusion before the deadline on Friday for the buyout attempt, which has been extended by one month and will fall through in the absence of a ruling.
Regulations require buyouts to be carried out within 50 days of their announcement, while the buyer may extend the tender offer by one month.
Orion Investment, a joint venture of US private equity fund Kohlberg Kravis Roberts & Co (KKR) and Yageo founder Pierre Chen (陳泰銘), announced the extension last month in a statement after obtaining the go-ahead from the Fair Trade Commission.
The equity fund has since April 7 offered to buy a majority stake in Yageo for NT$46.78 billion (US$1.6 billion), or NT$16.10 per share in cash.
The FSC does not play the role of gatekeeper in reviewing company acquisitions, but simply provides professional opinions over financial aspects, Lin said. He declined to elaborate.
The FSC is reportedly concerned about Orion Investment’s plan to finance the buyout with bank loans exceeding the legal limit, local Chinese-language newspapers said. Heavy financing may strain Yageo’s capital structure as planned bank loans account for 70 percent of the purchase amount, higher than the two-thirds cap, the reports said.
Yageo reported NT$645 million in net profit for the first quarter, plunging 36 percent from NT$1 billion a year ago, after sharp competition drove down gross margins to 22.3 percent from 26.9 percent, the company said in its stock exchange filing.
However, the technology firm saw its net income grow more than five-fold to NT$4.15 billion last year, from NT$673 million in 2009.
Yageo said the acquisition is intended to help the company better compete on the international stage.
The Investment Commission has the final say on investments involving foreign firms, Lin said.
Yageo’s shares rallied 1.69 percent to NT$15 at the close of trade on the TAIEX on Friday, bucking a 0.21 percent fall on the bourse.