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June 5, 2007 12:37 pm

KKR to buy into Taiwan component maker

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Kohlberg Kravis Roberts is set to become the largest foreign shareholder in Yageo, a passive components maker, reaffirming private equity interest in Taiwan after Carlyle recently dropped a plan to acquire ASE.

The move, through the acquisition of a US$230m convertible bond, highlights that smaller, low profile deals will get backing from the government even after Carlyle withdrew its $6bn bid for ASE, the world’s largest chip testing and packaging firm.

That bid was seen as problematic from the start, with many commentators predicting the Taiwan government would not easily approve the delisting of its leading semiconductor packaging company.

However, ASE named price as the main reason for the failure to reach an agreement.

Yageo said Tuesday that the KKR deal had received regulatory approval and would close on June 15. “Assuming full conversion, KKR would hold an equity stake in the business equivalent to 16.1 per cent of Yageo’s issued share capital,” the company said.

The conversion price is T$16.5 per share, an 11.5 per cent premium over Yageo’s average closing price over the three trading sessions before the agreement.

Observers said the decision by the Financial Supervisory Commission, Taiwan’s market regulator, to allow the KKR investment showed that private equity was still welcome on the island as long as firms did not propose deals that would be difficult to explain politically or invoked fears of large numbers of delistings from the Taiwan Stock Exchange.

“It’s good if it doesn’t come in the form of a buyout, if it doesn’t entail an immediate delisting, and if the target is not a prominent company that has the dominant size of an ASE,” said a lawyer who has been advising foreign financial investors in Taiwan.

Yageo is the world’s largest supplier of chip resistors and a leading maker of other passive components. It reported T$1.9bn in net earnings for 2006.

Pierre Chen, Yageo chairman, welcomed KRR’s investment and said it would allow his company to participate in the consolidation of the global passive component industry.

Yageo’s shares closed up 1.3 per cent at T$15.80 Tuesday.

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