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In Yageo’s public tender offer case, SFIPC urges Yageo to form an independent review committee to evaluate the price and reasonableness of the purchas

Orion Investment Co.Ltd.(abbreviated as Orion) announced that it will public tender offer all outstanding shares of passive component giant Yageo at NT$16.1 per share and that the two will have a post-purchase merger conducted in cash. This announcement has garnered huge market attention.

The SFIPC points out that Orion is a joint venture between Yageo chairman Chen Tai-ming and a private equity fund under the U.S.-based KKR. According to the public tender offer prospectus, Yageo chairman Chen Tai-ming, directors Hsu Chang Hsing Enterprise and Shi Heng Enterprise and supervisor Sheng Tai Hsing Enterprise have already signed the deal with a holding company under KKR and have agreed to sell their holdings of 7.52% of all Yageo common shares to the public tender offeror. Therefore, doubts have remained over any decisions regarding the public tender offer, such as its price and objectives, made by the Yageo board, whose neutrality is questionable. It’s hard to expect that the Yageo board can make an appraisal that is fair and just.

The SFIPC noted that Yageo was engaged in what is known as management buyout (MBO), whereby the management of a company wins the support of an outside party (such as a private equity fund), which then purchases portions or all of the company’s shares in the public market. As a result, MBO has a huge impact on shareholders’ rights. This is especially so in this case where Yageo’s chairman is closely linked with the public tender offeror. Moreover, the net worth of the Yageo stock is NT$14.7288 (based on its 2010 Q3 financial report), and earnings per share for 2010 was NT$1.89. As stock prices usually reflect the future performance of a company, deciding a public tender offer price based on the company’s stock price in the past raises concerns over the reasonablenessof the public tender offer. Therefore, the SFIPC believes there is a need to examine how the price was decided and whether any comparison efforts were made.

As an agency that champions the rights of small shareholders, the SFIPC reminds that most of the attention in this case has been focused on whether minority shareholders received fair treatment, which requires majority shareholders and directors/supervisors to avoid conflict of interest and ensure the independence of the evaluation process and the reasonableness of price. Although dissenting shareholders may still request that their holdings be redeemed and that a fair price be set through the judicial process, this is the last resort. The setup of a mechanism that reviews and assesses the price and reasonableness of the public tender offer in a transparent manner will better protect shareholders’ rights and avoid disputes.

According to Article 14 of the “Regulations Governing Public Tender Offers for Securities of Public Companies,” the public companies with securities subject to public acquisition should make public announcement of shareholder's recommendations and responses about the acquisition case within seven days after it receives acquisition notice and related documents. Hence, the SFIPC appeals to Yageo and hopes that the company will act in accordance with provisions of Article 12 of the Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies” with respect to this public tender offer case. Apart from handling the matter in accordance with the relevant regulations, an independent and impartial review committee should be formed to look into the reasonableness of the public tender offer price and plans, etc. At the same time, attention should also be paid to review the criterion for the public tender offer price decision, and matters of avoidance of conflict of interest. Information relating to the contents and processes involved in the above-mentioned case at board of directors should be made open to maintain shareholders’ interests and avoid dispute.

As for dissenting shareholders who are left on their own to make gains or losses, the SFIPC urges Yageo to give them the option to exchange their holdings for cash or keep their shareholder status in the surviving company after the merger, so they can continue to make investment gains, enjoying the same kind of opportunity afforded to Yageo chairman Chen Tai-ming, who has retained his shareholder status.

Separately, in the case where Yageo issued overseas convertible bonds to KKR, which is directly involved in this public tender offer, the SFIPC points out that the amount of bonds that can be converted to shares will be critical in completing the public tender offer. The completion of the public tender offer by way of converting bonds to shares, and the subsequent expulsion of dissenting shareholders will severely hurt the rights of shareholders.

Meanwhile, regarding the private placement proposal raised in Yageo’s shareholders’ meeting this year, the public is concerned over such action since the target of the private placement is decided by the Yageo board. As Yageo currently has no difficulties in raising funds publicly, the SFIPC recommends that, for any fundraising purposes, Yageo should do so in a public manner. Any private placement efforts should be postponed.

The SFIPC has sent letters to Yageo, asking the company to rectify all issues as addressed above to protect shareholders’ rights. 

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Update Date:2015/12/04 14:22