Yageo vs. Ta-I, Powerchip vs. Macronix
Acts of M&A Theatre With No Winners
Two classic examples of major hostile takeovers offered the public a glimpse of how management missteps combined with angry retaliation from the target company can burn both parties.
Acts of M&A Theatre With No WinnersBy Jimmy Hsiung
From CommonWealth Magazine (vol. 387 )
Yageo vs. Ta-I
Wingtips Against Sneakers
The ultimate outcome of the Yageo acquisition of Ta-I Technology took some of the wind out of the sails of Yageo Chairman Pierre Chen, who had been bullish on the acquisition strategy.
Yageo is Taiwan’s biggest producer of passive components and top maker of chip resistors; Ta-I Technology was number two in chip resistors. Yageo had assumed that merging the two giants would allow them to maintain a huge competitive edge in globalized competition.
But Ta-I founder and CEO Chiang Tsai-bao was unconvinced. In Chiang’s view, Yageo was definitely motivated by more than a simple desire to create a "powerful united" entity. Chiang, who founded his business right out of Taoyuan’s Wuling High School, is a classic case of a blue-collar guy working his way to the top, with the temperament and diligence of a technician, explains Chiang’s special assistant Bai Hsu-ping. This posed a fundamental clash of corporate culture with Yageo Chairman Pierre Chen, who has always made his mark with financial manipulation and strategy.
Yageo subsequently began snapping up Ta-I Technology shares, sending share prices soaring from double-digit levels to an eventual high of NT$210 per share (closing price, 3 April 2007), a spike of 438 percent in share prices.
Such irrationally taking off of stocks has prompted Taiwan’s Securities and Exchange Commission to issue as many as 13 market advisories denoting Ta-I shares as "cautionary stocks."
As the final showdown loomed, Ta-I Technology, which had scheduled its shareholders meeting for June 13, postponed the gathering until August 22.
Ta-I cited a complaint filed by Yageo affiliate Kuo Hsin Investments alleging that Ta-I’s June shareholders meeting was in violation of the Corporate Law as its grounds for postponing the meeting. Bai says that Ta-I’s legal team determined that paying a resultant fine would be preferable to convening a fruitless shareholders meeting, resolving to postpone instead. Yageo chairman Pierre Chen, who made his mark with his shrewd acquisition strategy, came up badly wounded by his company’s attempted takeover of Ta-I Technology.
With the final showdown thus deferred, Yageo contended that Ta-I simply announced the postponement because it had failed to secure the more than half of shareholder proxies required.
"Ta-I’s move was counter to corporate management principles and the established rules of commercial law," declares Wei-cheng Lee, Yageo’s vice president for global marketing.
Bai counters that Ta-I had no need to postpone the shareholders meeting to secure shareholder proxies. "We’ve never needed to recruit more than two percent proxy support; most of our support is from major shareholders," he adamantly states.
He retorts that Yageo’s acquisition involved numerous entities buying up Ta-I shares, staying below 10 percent to avoid the SFC public notice requirement, but that many of the affiliate companies involved had the same registered address and telephone numbers. "The effect of the lack of a public notice was wild instability in Ta-I share prices. This was especially unfair to investors kept in the dark."
As the August shareholders meeting approached, Ta-I, holding 51 percent equity, played its hand. Ta-I employed a block vote to select a slate of nominees for the board. In the final outcome, Yageo, despite its more than 40 percent equity, was not even given one seat on the board. A grim-faced Chen Hsiang-yen, chief Yageo legal counsel and chairman of Teapo Electronic Corp., emerged from the shareholders meeting, got in his car, and departed without comment.
Although Ta-I has reestablished authority over company operations, Yageo has to date filed 10 separate lawsuits against Ta-I. Among them is a slander case over Ta-I CEO Chiang’s public characterization of Yageo’s buyout attempt as "thievery" during a post-shareholders meeting news conference.
It is indeed this "thievery" comment for which Yageo is now seeking NT$100 million in redress for damage to its reputation. That and the rest of the aforementioned lawsuits are still pending.
Powerchip vs. Macronix Japanophiles Take on the Amerophiles
Another ugly public battle was that between Powerchip and Macronix. After buying a 12-inch wafer plant from Macronix last year, Powerchip decided to deepen its cooperative relationship with Macronix.
"Macronix only had one 8-inch plant. How would they compete in the future?" Powerchip Chairman Frank Huang wonders.
But what at first appeared to be well-intentioned cooperation eventually played out as Powerchip’s unilateral objectives. Powerchip’s purchase of Macronix, which seemed like a synergistic combination at first, turned out to be a case of misplaced affection on the part of the former. (Powerchip chairman Frank Huang, pictured)
Industry insiders believed that Powerchip’s efforts to develop flash memory products would require access to technology like Macronix’s NorFlash technology.
"It gave people the impression that Powerchip bought Macronix just for the technology and really didn’t care about the rest," one memory chip executive said privately. The future survival of Macronix and the fate of its workforce are unsettling question marks in the event of a hypothetical Powerchip takeover of Macronix, he says. "As chairman and spiritual leader of Macronix, there’s no way Miin Wu is going to stand idly by and allow this to happen."
Shortly after Macronix sold Powerchip the 12-inch wafer plant under amicable circumstances, Miin Wu, who has struggled for the past two years to stem the tide of red ink at Macronix and take the company into the black, was in the papers at the height of the proxy struggle. Wu came right out and accused Powerchip Chairman Frank Huang of involvement in the Li Kuang Technology insider trading fiasco and wondered aloud whether such shenanigans would once again play a part in a Powerchip takeover of Macronix.
"I can only express regret and befuddlement," said Powerchip’s Huang, having just sealed the biggest Taiwan-Japan joint venture deal in Taiwanese corporate history. "Given the close alliance of Powerchip with two major Japanese memory chipmakers, why would we need to knock on Macronix’s door for technology?" poses Huang, indignant at the implications of market rumors.
In addition to the two companies’ inability to reach an agreement, what amazes Powerchip is the fact Powerchip’s continually growing 5.34 percent equity in Macronix gives them the clear edge over the less than four percent held outright by the Macronix boards of directors and supervisors. One day prior to the shareholders meeting, however, Macronix announced that 30 percent of proxies held by Powerchip authorizing the takeover were unqualified per shareholders meeting registration rolls.
"The only way Macronix could pull this off is because they handle their share management in-house," says one market insider familiar with stock exchange law and shareholders meeting convening procedures. Handling their own stock management offers two major trump cards for companies: the shareholders’ list and the shareholders’ meeting registrations verifications.
When the Macronix shareholders meeting convened on that June day, Powerchip Vice Chairman Tsai Kuo-chi, representing the company and its shareholders, had no hand to play as Macronix had announced the previous day that 30 percent of Powerchip shareholder proxies had not completed registration procedures for attendance. Of the 15 seats on the Macronix board, the Macronix side took 13, leaving Powerchip with two seats on the board of directors and one on the board of supervisors. After more than 10 hours at the Macronix shareholders meeting, Tsai’s face was knotted with anger and indignation.
Powerchip and Macronix, Yageo and Ta-I present two cases of manifestly public "hostile takeovers" where the corporate images of all the principals involved took a hit. And nobody saw that coming at first.
Translated from the Chinese by Brian Kennedy