The Legislative Yuan has tightened the rules governing the implementation of tender offers for company acquisitions in a bid to protect minority shareholders.
An amendment to the Securities and Exchange Act (證券交易法) was passed by the legislature on Friday, stipulating that potential buyers proposing tender offers must present proof of their financial stability to authorities before the acquisition process can begin.
The amendment was proposed by Chinese Nationalist Party (KMT) Legislator Lai Shyh-bao (賴士葆) after Bai Chi Gan Tou Digital Entertainment Co (百尺竿頭) on Aug. 30 announced that it was withdrawing a tender offer that it had proposed in late May to buy 38 million XPEC Entertainment Inc (樂陞科技) shares, or 25.17 percent of the gaming software developer, at NT$128 per share, almost 22 percent higher than XPEC’s share price at the time.
The decision by Bai Chi to walk away from the deal caught the market off-guard and led to a rout in XPEC shares, which caused massive losses for investors.
Trading of XPEC shares was suspended on Oct. 17 after the company failed to release its third-quarter results.
Before the suspension, the stock closed at NT$13.2, down from a peak of about NT$114 in early June after the tender offer was announced.
“The amendment aims at fixing the regulations that lack a pre-emptive mechanism to prevent failed tender offers,” Lai said.
He said the most flawed part of the law was a lack of sufficient information about potential suitors’ financial background and how they planned obtain funds to carry out their proposed acquisitions.
Before the amendment, minority shareholders of a company targeted by potential buyers were not protected and could suffer tremendous losses, Lai said.
About 19,550 investors are seeking more than NT$2.8 billion (US$87.5 million) in compensation in the XPEC case as of Tuesday last week.
While the amendment is expected to provide minority shareholders with more protection, analysts said that it could complicate the tender offer process and raise acquisition costs, which would likely dampen potential buyers interest in launching a takeover bid, and eventually harm the economy.
Analysts also said that during the evaluation of a potential buyers’ finances, there could be leaks about acquisition information, leading to a possibility of insider trading.
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