Taiwan blocks $1.6 billion KKR-backed buyout of Yageo

TAIPEI Wed Jun 22, 2011 6:51am EDT

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TAIPEI (Reuters) - Taiwan regulators rejected Kohlberg Kravis Roberts & Co's (KKR.N) $1.6 billion joint management buyout of electronics component maker Yageo Corp (2327.TW), a decision that may cast a shadow over other private equity involvement in the island.

The Investment Commission, which made the decision after meeting with the market regulator and other government bodies, said minority shareholders had not been given enough information to judge if the offer was fair and the deal involved too much debt.

"They never explained enough to clear regulators' doubts," Fang Liang-tung, executive secretary of the Commission, told reporters.

"The ruling was based mostly on the weakening of Yageo's financial structure, and the deal would have a substantial impact on Taiwan's capital markets."

Taiwan's regulators have built up a reputation among foreign investors for being picky, especially toward private equity firms, which they see as interested mainly in making a quick profit.

In 2006, Taiwan blocked Carlyle Group's CYL.UL plan to buy ASE (2311.TW) and delist the firm, citing ASE's status as the world's No.1 IC testing and assembly firm and its heavy weighting in the local stock market.

More recently, Carlyle had to wait for a year for approval of its sale of a Taiwan cable TV unit, which was finally given the green light last November.

Other foreign firms have also struggled in a regulatory environment the American Chamber of Commerce in Taiwan recently called "inconsistent."

AIG (AIG.N) needed almost two years to dispose of its Taiwan life insurance arm as regulators rejected one deal and dragged out the review process on a second.

FALLOUT OF DECISION

People with direct knowledge of Taiwan's regulators and private equity business said the rejection could mean less involvement by private capital in Taiwan, since many firms might see it as a "gigantic waste of time," according to one of the people.

They said that some private equity firms had been waiting for the outcome of the Yageo deal before pushing ahead with their own deals, but it was likely now that those deals would be off the table.

Sources had told Reuters last week that the Yageo deal had run into objections from the financial regulator, and faced a strong chance of rejection.

The Commission, which oversees foreign investment in Taiwan, denied that the rejection had anything to do with private equity.

"This deal has stirred some negative perception. It did not get approved because regulators still had doubts, not because it's a PE deal," Fang said.

Yageo and KKR announced the management buyout on April 6, offering T$16.10 a share. KKR has been a partner with Yageo, a maker of electronic components including resistors and capacitors, since 2007, and holds a 28 percent stake. Yageo founder and chairman Pierre Chen partnered KKR in the buyout plan.

KKR said in a statement on Wednesday it remained fully committed to its investment in Yageo, which has created jobs and experienced growth since KKR invested in it in 2007.

"KKR has full confidence in the ability of Yageo's management to continue to grow the company," the statement said.

A source close to KKR said the deal was not significant in financial terms, and the rejection would not have much impact on the buyout firm.

The deal had been aimed at giving Yageo more firepower to expand overseas, while also addressing a long term decline in its share price.

Besides the issue over minority shareholder rights, the Commission also said that the deal was highly leveraged, and the Taiwan authorities don't welcome such deals. It also cited conflict of interest on the part of the deal's financial adviser, UBS AG (UBSN.VX), but did not elaborate.

Yageo shares closed down 1.4 percent on Wednesday.

(Additional reporting by Stephen Aldred in HONG KONG,; Writing by Jonathan Standing; Editing by Muralikumar Anantharaman)

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