Taiwan Probes MediaTek-MStar Deal for Insider Trading

Taiwan authorities are investigating possible insider trading linked to the planned $3.8 billion merger of MediaTek Inc. and MStar Semiconductor Inc., companies that produce 70 percent of the chips used in TVs.

Both companies gave documents to authorities yesterday, they said in separate stock exchange statements. The investigations relate to the actions of individuals and not to the companies’ operations, the Hsinchu-based chip designers said separately.

Taipei Deputy Chief Prosecutor Huang Mou-hsin said in an interview late yesterday that investigators searched the offices and homes of five suspects, including employees of MStar and another company he wouldn’t name. Prosecutors were expected to finish interviewing five suspects and two witnesses yesterday.

Shares of both chipmakers have surged more than 30 percent since MediaTek announced the agreement June 22, compared with a 13 percent increase in the Taiwan Stock Exchange index. The deal would be the fifth-largest semiconductor acquisition globally in the past decade and would end competition between the companies as they face stagnating global demand for televisions.

Shares of both companies were unchanged today in early Taipei trading.

Rising Cost

Both companies’ shares climbed 1.1 percent in Taipei trading on June 22 before the merger was announced. When asked, Huang declined to give a timeframe for when the suspicious trading occurred.

MStar turned over shareholder information and trading records to authorities, the company said. MediaTek provided materials to investigators looking into the planned deal, the company said in an exchange statement.

MStar shareholders would get 0.794 of a new MediaTek share plus NT$1 ($0.03) in cash for each stock held, a 20 percent premium to the closing price on the day of the announcement, the companies said at the time.

MediaTek Chief Financial Officer David Ku said last month regulatory delays have raised the price of the deal, without quantifying the cost. China’s antitrust regulator remains the final hurdle after Taiwan and South Korea authorities gave their approval.

Insider trading is punishable by as many as 10 years in prison under Taiwan law. In separate cases, executives of Inventec Appliances Corp. and AU Optronics Corp. were acquitted of insider trading charges.

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