UMC investors move to protect chairman

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Shareholders in United Microelectronics, the world's second-largest contract chipmaker, have given Robert Tsao, chairman, free rein in handling relations with Hejian, a Chinese chipmaker, that could help protect him in an investigation into his mainland business strategy.

UMC's annual general meeting on Monday approved a motion stating Mr Tsao's China strategy was in the long-term interest of the company and did not constitute a breach of trust. Shareholders also voted to support any future decision by Mr Tsao in relation to Hejian, and to approve the acquisition of a 15 per cent stake in the Chinese company once this became legal in Taiwan.

“Shareholders agree that anybody trying to hold the chairman and the management team responsible for either the relationship between Hejian and UMC or the action of transferring shares would be acting against the best interest of UMC's shareholders,” the motion said.

Taiwanese prosecutors are investigating Mr Tsao and more than 20 current and former UMC executives for alleged breach of trust, arguing UMC's management might have acted against its shareholders' best interests by assisting with management, technology or financial resources in the establishment of Hejian Technology, a contract chipmaker in Shanghai.

Hejian was set up in December 2001 by two executives who were still employed by UMC at the time. Mr Tsao has acknowledged that UMC “assisted” in the establishment of Hejian in order to build an early base for his company in the important Chinese market.

The UMC chairman has also said he wants UMC to take over Hejian as soon possible, although this is currently illegal. Taiwan's government banned mainland investment by the island's chipmakers in 2001.

Taiwan prosecutors argue UMC management acted against its shareholders' interests by providing Hejian with company resources for free. After investigators raided UMC's headquarters and the homes of several executives in February, Mr Tsao announced that Hejian had agreed to give UMC a 15 per cent stake.

Although Taiwan has loosened restrictions on chipmaking investments in China, such a stake would be illegal unless approved by the Taiwan government. But such investments are allowed only if the target company operates with technology older than that used by Hejian.

Analysts said Mr Tsao's manoeuvres to get shareholder backing amounted to an ultimatum to the government. “The Ministry of Economic Affairs is now under pressure to let them go ahead and then further liberalise mainland investments for other chipmakers too to create a level playing field,” said an analyst who declined to be named. “Otherwise they will risk very negative market reaction.”

Mr Tsao said the Hejian shares would be merged into UMC's subsidiary in Japan in the long term.

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