A Japanese firm’s sudden change of mind about acquiring a 25.17 percent stake in Taiwanese gaming developer XPEC Entertainment was certainly the most riveting local business news last week, far more interesting than Mega International Commercial Bank’s ongoing saga over money-laundering compliance issues.
The about-face not only raised the question of whether the two parties — XPEC and Japan’s Bai Chi Gan Tou Digital Entertainment Co — can regain investor confidence in their management and corporate governance, but also puts the credibility of Taiwanese regulators and the availability of the domestic capital market to the test.
It all started with Bai Chi’s announcement on May 31 that it would spend NT$4.86 billion (US$153.3 million at current exchange rates) to purchase 38 million common shares of XPEC. In the middle of last month, speculation arose that Bai Chi might delay the deal. Bai Chi later said that it would extend its payment deadline, before announcing on Tuesday that it was ditching the deal because of concerns about XPEC’s share price.
The U-turn not only caused massive losses for investors, but was also the first default on a tender offer settlement in Taiwan. Faced with mounting anger from XPEC investors over the default, the Financial Supervisory Commission on Friday sued the Japanese firm for failing to honor its commitment, while the Taipei District Prosecutors’ Office formed a special task force to look into the botched deal and possible violations of the Securities and Exchange Act (證券交易法) and the Criminal Code.
The commission is scheduled to hold a public hearing this week to review the tender offer mechanism and is mulling a requirement that potential suitors provide a deposit.
In a bid to rebuild investor confidence, XPEC has proposed an open market buyback of up to 6.25 million of its shares for between NT$45 and NT$130 each from today until Nov. 4. The company has said it would take legal action against Bai Chi, whose acquisition price of NT$128 per share was a 22 percent premium over XPEC’s closing price on May 31.
It is not known if XPEC can afford to take a hit from the fallout, since it only has about NT$670 million in cash and cash equivalents. However, what is sure is that investors, especially those who bought XPEC shares after May 31, have been hit hard by Bai Chi’s backing out. XPEC shares on Friday tumbled by the 10 percent daily limit for a third consecutive session to close at NT$56.9, their lowest price in 46 months.
While XPEC’s management might think that they were fooled by Bai Chi, investors feel cheated by the entire episode and some even suspect XPEC of colluding with Bai Chi, raising allegations of possible insider trading and financial fraud.
The government’s company registry system shows that Bai Chi, which is controlled by Yoshiaki Kashino, has a paid-in capital of just NT$50 million, raising questions as to how it planned to come up with the nearly NT$5 billion needed to acquire XPEC.
The incident raised questions about the responsibility of the three independent directors on XPEC’s board who joined in approving the tender offer in June, as well as the supervisory mechanism of government agencies including the Financial Supervisory Commission, the Investment Commission and the stock exchanges.
While the government must take decisive and responsible action toward those who are accountable, many investors are still hoping for a workable solution that respects their legitimate concerns while fostering a healthily functioning capital market in this nation.
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