KKR targets $1.56b privatization of Taiwan’s LCY Chemical

A consortium led by the private equity firm has signed a share exchange agreement to acquire all outstanding shares in LCY for NT$56.00 apiece, including a dividend of NT$2.90 per share. The offer price represents a 17.28% premium to the July 20 closing price.

LCY has been in business for more than 50 years, producing specialty chemicals with a concentration on plastics used in infrastructure, healthcare, household, automotive, textile, and electronic products. Revenue came to NT$45.1 billion in 2017, up from NT$39.9 billion the previous year. Over the same period, net profit fell from NT$3.99 billion to NT$3.67 billion.

The other consortium members are LCY’s current employees and the company’s founding family. KKR, which will hold a majority and controlling interest, plans to maintain the existing corporate headquarters in Taipei as well as production plants in Taiwan, mainland China, and the US. The GP will also support investment in R&D and growth initiatives around technology, capacity, and product differentiation. Global expansion is on the agenda as well.

"The proposed transaction delivers meaningful and immediate value to our shareholders, while also providing greater access to capital, operational resources and the time horizon needed to execute a strategy to drive long-term, sustainable value creation,” T.H. Hong, LCY’s chairman, said in a statement.

KKR invested $230 million in Yageo in 2007 through a convertible bond issue and launched a $1.6 billion buyout bid four years later. Given the private equity firm’s preexisting involvement in the company and the fact that its partner in the bid was Pierre Chen, Yageo’s founder, industry participants hoped there would be no repetition of previous difficulties in Taiwan take-privates.

The offer, which represented a 14% premium to the previous closing price, was accepted by the majority of Yageo’s minority shareholders. However, regulators rejected the deal. The Investment Commission, a group within the Ministry of Economic Affairs, told the prospective buyers that they had not mollified doubts "about shareholder and investor protections, whether the offer price is reasonable, and the level of transparency of information disclosure."

There have been calls for a clearer guideline on foreign investment, including a list of sectors in which it is not welcome and explanations if transactions are rejected. Legislative amendments in 2015 said that take-privates can go through if endorsed by third-party expert analysis, approved by an independent committee, and accepted by at least two-thirds of shareholders. Nevertheless, private equity players remain wary.

Nine buyouts worth a cumulative $5.8 billion were announced in Taiwan in 2006 and 2007. Deal flow for the last five years stands at approximately $500 million, also across nine transactions.

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• Topics
• Greater China
• Industrials
• Buyouts
• Regulation
• Taiwan (China)
• KKR
• manufacturing