Private Equity Fund and Corporate Governance of Target Companies

• Main Authors: Hu,Shih-Mei, 胡詩梅
• Other Authors: Chang, Hsin-Ti
• Format: Others
• Language: zh-TW
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/50307644155116177834

碩士 === 國立臺北大學 === 法律學系一般生組 === 99 === In recent years, foreign private equity funds aggressively look for mergers and acquisitions our local companies by implementing the leverage method. For examples, Carlyle Group showed a highly interest in the acquisition of Advanced Semiconductor Engineering, Inc. and H&Q allied with Merrill Lynch acquired Primax Electronics Ltd..This thesis statement mainly focused on whether a successful acquisition could improve the ability of the target companies’ corporate management or not. The results would influence the Competent Authority’s attitude of facing the private equity funds in Taiwan.This thesis would also describe the operation method of private equity funds, and the rules and regulation of limited partnership in United State’s law. Basically, this thesis is positive to the private equity funds; it could improve target companies’ corporate governance and reduce their agency costs. In addition, the U.S. and European countries had come out with several financial reforms such as Doll-Frank Act in 2010 and AIFM Directive in 2011. This thesis also discusses about these financial reform acts’ influences of private equity funds. It will have a significant impact on advisers for the private equity funds by requiring the registration of certain unregistered advisers and imposing additional reporting and disclosure requirements on investment advisers. In general, these acts will increase the transaction costs of private equity funds. Therefore, the development of private equity funds will be limited. From the corporations’ point of view, put together private equity funds at the time of acquisition, local target companies could lead to risk in the acquisition. These risks include conflicts of interest and excessive leverage arising from acquisition phase; and conflicts of interest and asset stripping in operation phase. In operation phase, this thesis finds that it’s not necessary like AIFM Directive to amend Taiwan’s existing law. However, in acquisition phase, this thesis suggested that our existing law needs to improve and made the following recommendations. Usually private equity funds use MBO method to acquire target companies. When the member of acquirer was involved in multiple interest of the target company, conflicts of interest occurred. Due to the management owned contractual duties under his contract of appointment with private equity funds. On the other hand, the management must act in the best interest to the target company and the shareholders. Target company will face the risk that the management are likely to deprive the interests of shareholders and the target company. To avoid or prevent this risk, this thesis suggests that target companies should establish a “special committee” to value the whole acquisition plan, give independent and objective advices, and appropriately disclose information about approaches applied in the face of conflicts of interest transaction. In terms of the risk of excessive leverage, due to the private equity funds usually make use of a leverage method to merge or acquire our local companies, they may cause target companies hard to afford the loans. This thesis suggests that our competent authority should set a leverage limit to avoid the risk. Hopefully this thesis can be considered as a reference document and make some contributions to future amendment.