Taiwan is expected to implement an amendment to its M&A policy that will set a more methodical and transparent approval process for private equity bids, according to Jonathan Hsin, partner in transaction advisory services at Ernst & Young in Taiwan.
The amendment is known as the “Yageo Clause” and refers to the unsuccessful $1.6 billion bid by Kohlberg Kravis Roberts for Taiwan’s Yageo, the world’s largest passive component maker, in 2011. The take-private deal was blocked by regulators for unclear reasons despite approval by shareholders and management.
[The amendment] will open the doors for private equity investment in Taiwan, but everyone is waiting for the first investor to step forward and go through the process, which will be a milestone
Among other reforms, the Yageo Clause will set the criteria for approving a private equity bid at 2/3 of shareholders’ approval. If regulators reject a bid outside that criteria, they must provide concrete explanations in line with M&A policy.
The clause also calls for clear regulatory processes in assessing a private equity bid and the establishment of a timeline for approval.
The amendment is awaiting a final stamp from Taiwan’s Legislative Yuan, expected in September.
Hsin says the expectation is for the amendment to be approved and he says KKR could also reactivate its bid for Yageo.
“[The amendment] will open the doors for private equity investment in Taiwan, but everyone is waiting for the first investor to step forward and go through the process, which will be a milestone.”
The fizzled Yageo deal in 2011 resulted from “very conservative regulators who were concerned Taiwan shareholders would suffer losses [from the proposed delisting], even though shareholders had approved the bid”, Hsin said.
The failed deal spotlighted the roadblocks thrown up by regulators and in part accounts for the reason Taiwan has such low private equity investment, Hsin said. “The risk from regulators is unpredictable.”
Now, however, the government wants to attract more foreign investment, which is very low compared to neighboring countries, he added.
According to a recent AmCham Taiwan white paper on foreign investment, “Taiwan embarrassingly ranks second to last among 17 Asian countries – behind Sri Lanka and ahead only of Pakistan – in attracting PE-fund investment.”