* Regulator concerned about minority shareholders rights
* Regulator: deal was highly leveraged and thus "not
* Yageo shares end down 1.4 pct after decision
* Move may see many firms walk away from Taiwan-PE industry
(Recasts with comment, KKR statement)
By Faith Hung and Argin Chang
TAIPEI, June 22 Taiwan regulators rejected
Kohlberg Kravis Roberts & Co's $1.6 billion joint
management buyout of electronics component maker Yageo Corp
, 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
"They never explained enough to clear regulators' doubts,"
Fang Liang-tung, executive secretary of the Commission, told
"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 towards private equity
firms, which they see as interested mainly in making a quick
In 2006, Taiwan blocked Carlyle Group's plan to buy
ASE 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
AIG 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
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
"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
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 , 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)