TAIWAN Law and Practice Contributed by: Eddie Chan, Derrick Yang, Winnie Lin and Yuan-Yuan Lo, Lee and Li Attorneys-at-Law
of communications with the regulators/investors and the relatively low listing/maintaining costs, etc. A few Taiwanese companies also choose to do a dual listing by issuing GDR (Global Depositary Receipt), which allows them to access both local and interna- tional capital markets and to diversify their investor base. This approach can also enhance the company’s global visibility and facilitate the development of its overseas business. 3.3 Impact of the Choice of Listing on Future M&A Transactions Listing rules vary according to stock exchanges in dif- ferent countries. If a company chooses to list on a for- eign stock exchange, it must thoroughly understand relevant regulations that might come into play in order to properly evaluate the potential implications for and impact on the company’s future operations and M&A transactions. Companies are usually required to comply with the laws and regulations of both their place of incorpora- tion and the foreign exchange. A Taiwanese company seeking to list on a foreign exchange will conduct a restructuring first to tailor to the foreign exchange’s regulations. 4. Sale as a Liquidity Event (Sale of a Privately Held Venture Capital- Financed Company) 4.1 Liquidity Event: Sale Process If the sale of the company is chosen as a liquidity event, it will mostly be conducted in a bilateral nego- tiation with a chosen buyer, rather than through an auction. In Taiwan’s local M&A transactions, auctions are mainly seen in the financial sector; in the technol- ogy industry, auctions are more likely to be used in asset sales than share deals. 4.2 Liquidity Event: Transaction Structure In Taiwan, for a sale of a privately held technology company that has a number of VC investors, a sale of the entire company is more commonly seen than a sale of controlling stake, as there are usually drag- along and tag-along provisions in the investment
agreement. Generally, buyers also consider it efficient to acquire the entire company as this could simplify the transaction process and avoid complexity and uncertainty in the future. 4.3 Liquidity Event: Form of Consideration Cash is most commonly used as the consideration for a sale of a privately held venture capital-financed company in Taiwan, as VC investors typically expect a cash return on their investment. Nevertheless, it is also possible to use shares or a combination of cash and shares as the considera- tion, particularly where the buyer is a listed company, depending on the nature of the transaction, the prefer- ence of the parties and the approval from competent authorities. 4.4 Liquidity Event: Certain Transaction Terms Consistent with the global transaction practice, found- ers are generally required to stand behind represen- tations and warranties and certain liabilities for the company, while VC investors typically only give rep- resentations and warranties regarding their ownership and title to shares. An escrow/holdback is customary for these purposes if such arrangement acts in favour of the VC or PE. While representations and warran- ties insurance may be sought for larger cross-border transactions, it remains less common in local inbound investment deals. There have been a few spin-offs in the technology industry in Taiwan, but they are not considered com- mon. Structuring the transaction as a spin-off may involve the segregation of a partial independently operable business of the seller as opposed to selling the entire business, or it may be done for reasons such as the consideration being directly paid to the seller’s shareholders. A spin-off can be more complex than a share deal in terms of carve-out and transition procedures, particularly when the business requires special permits and involves the spinning off of manu- facturing sites. 5. Spin-Offs 5.1 Trends: Spin-Offs
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