The Ministry of Economic Affairs’ Investment Commission yesterday rejected private equity fund Orion Investment Co’s (遨睿投資) NT$46.8 billion (US$1.6 billion) buyout of Yageo Corp (國巨), Taiwan’s biggest maker of passive components used in electronics, citing concerns over the deal’s financial structure and lack of transparency.
Investment Commission Executive Secretary-General Fan Liang-tung (范良棟) told reporters after convening a meeting on the buyout that yesterday’s veto did not mean Taiwan was reluctant to open itself to foreign private equity funds.
All 18 commission members voted against the deal. Orion can still appeal the veto to the Cabinet within 30 days.
Orion is owned jointly by Yageo founder Pierre Chen (陳泰銘) and US investment fund Kohlberg Kravis Roberts & Co LP (KKR).
On April 7, Orion offered to buy a majority stake in Yageo for NT$46.8 billion in cash, or NT$16.1 per share.
One reason the commission rejected the buyout was that minority stakeholders’ interests could be at risk because of a lack of transparency in the stake--buying prospectus, while it deemed the NT$16.1 per share purchase price to be too low, Fan said.
Yageo shares closed down 1.4 percent at NT$13.7 on the Taiwan Stock Exchange yesterday after the rejection was made public. In the past year, Yageo shares have moved between a high of NT$15.9 and a low of NT$12.3.
The commission also raised concerns over Orion’s plan to take out NT$28 billion in syndicated loans to fund the purchase.
Heavy financing could strain Yageo’s capital structure because bank loans would account for 70 percent of the purchase price — higher than the legally allowed two-thirds cap, the commission said.
The commission rejected the buyout after the Financial Supervisory Commission on Friday last week raised concerns about Orion’s plan to delist Yageo from the local bourse given the company’s weight in the technology sector and the likelihood that its capital base would be weakened by the buyer’s financial plan.
The Investment Commission made its verdict before the Friday deadline for the buyout attempt, which has already been extended by one month.
Regulations require buyouts to be carried out within 50 days of their announcement, while the buyer may extend the tender offer by one month.
The Fair Trade Commission, which oversees large deals to avoid the formation of monopolies, however, gave the green light to the Yageo purchase last month.
In response to the commission’s rejection, Orion yesterday said in a statement that Yageo would stick to its existing development strategies and KKR would maintain its partnership with the Taiwanese company.
“KKR will continue to support Yageo and will closely cooperate with company executives and management. As Yageo is the industry leader, KKR is confident in the management’s ability to expand [the company’s business],” Julian Wolhardt, a KKR partner, said in the statement.
One source said that KKR and Chen had not given up on the buyout deal and were exploring further possibilities.
ADDITIONAL REPORTING BY LISA WANG