Yageo shares come under pressure despite Pulse deal

Taipei, Shares of Taiwan-based Yageo Corp., a leading global passive component supplier, came under pressure late Wednesday morning after soaring early in the session on news that the company will acquire U.S.-based Pulse Electronics, dealers said.

The early buying reflected optimism over the acquisition, which is expected to boost Yageo's economies of scale and global competitiveness, increase its sales and strengthen its bottom line, they said.

As of noon, shares of Yageo had fallen 10 percent, the maximum daily decline, to NT$877.00 (US$29.33) after hitting an early high of NT$1,050.00, with 5.07 million shares changing hands.

The weighted index on the Taiwan Stock Exchange, the Taiex, was down 0.42 percent at 10,892.84.

The stock opened up about 2.6 percent to hit the NT$1,000 mark and continued its rise before selling set in midway through the morning to push the share price into negative territory, dealers said.

Hua Nan Securities analyst Kevin Su said the selling resulted from investors looking to lock in the gains from Yageo's recent spurt amid speculation of the pending acquisition.

"It seems investors tended to sell after the speculation turned out to be a reality," Su said.

Before Wednesday's pullback, Yageo shares had soared about 55 percent since the beginning of this month.

Still, the market remained upbeat about the acquisition, which "is expected to help the company grow at a faster pace," Xincheng International Investment Consultant analyst Chang Chih-cheng said.

"Yageo has a long-term strategy to grow through acquisitions, and the strategy is expected to enhance the company's pricing power in the global market," Chang said.

At a news conference held Tuesday, Chang Ming-ching (???), a Yageo financial manager, announced the company will spend US$740 million in cash to acquire a 100 percent stake in Pulse Electronics through Yageo's wholly owned subsidiary Pluto Merger Corp.

Chang said Pluto and Pulse signed an agreement on the acquisition deal, and the deal is expected to be completed in the fourth quarter of 2018 pending regulatory approval.

Chang said the purchase is expected to help Yageo, which makes a wide range of components such as resistors and capacitors, expand its reach in the 5G and electric vehicle sectors.

According to Yageo, Pulse posted consolidated sales of NT$12 billion and operating profit of NT$1.3 billion in 2017.

At present, 33 percent of Pulse's revenue is derived from internet equipment, 22 percent from wireless communications devices, 21 percent from power management solutions and cable systems, 6 percent from automotive electronics and 18 percent from other industrial devices.

Analysts said the deal is expected to boost Yageo's earnings per share by NT$3.7 a year.

Yageo said it has about NT$25 billion in cash on hand that it will use to finance the acquisition deal, which means the company will not need to raise funds by issuing new shares, which would dilute earnings per share.

Source: Focus Taiwan News Channel