TAIPEI: Chi Mei Optoelectronics Corp is under investigation by Taiwan's stock exchange for announcing a NT$177 billion ($5.5 billion) takeover by Innolux Display Corp a day after denying it was in merger talks.

The exchange is examining whether the company misled investors, spokesman Stanley Chu said by phone yesterday. In a November 13 statement, Chi Mei said it didn't have a plan to merge after the Economic Daily News reported that it was in talks with Hon Hai Group, controlling shareholder of Innolux, and AU Optronics Corp.

Chi Mei shares jumped 9.6 percent in the two days preceding the announcement and the volume traded was more than triple the three-month daily average. On November 14, Chi Mei announced the takeover by Innolux to create the world's third-largest maker of liquid crystal display panels.

"It was a bit unfortunate that there was a specific denial when Thursday's and Friday's gains show there was someone in the market who knew," said Matt Cleary, who yesterday upgraded Chi Mei to "buy" from "hold" at Deutsche Bank AG in Taipei.

The deal was reached on November 12 after six months of talks, said Chi Mei Chairman Frank Liao November 14.

"We need to investigate further," Stanley Chu, spokesman for the Taiwanese exchange, said by phone Monday.

Denis Chen, a spokesman for Tainan, Taiwan-based Chi Mei, said he hadn't heard of any investigation, although the company would cooperate with any probe.

Innolux hasn't heard of any investigation or complaints about its procedures, Jimmy Chiu, spokesman for the Miaoli, Taiwan-based company said Monday.

On November 14, the two companies said they'd merge by swapping one share in Innolux for 2.05 shares in Chi Mei. Chimei Innolux Corp will be chaired by Chi Mei's Liao, while Innolux President and Chief Executive Officer H.C. Tung will retain his posts in the new entity.

The transaction was worth NT$172 billion based on the 7.5 million shares Chi Mei has outstanding and Innolux's closing price on November 13 of NT$47, Chen said November 14. The value climbed to NT$177 billion today, according to Bloomberg calculations.

"Since the situation last week was that we didn't have a clear picture of the merger case, we didn't disclose this, so we denied it, because everything was in process," Chi Mei's Chen said.

Chi Mei shares climbed 5 percent on November 12 and 4.4 percent on November 13, while Taiwan's benchmark Taiex index was almost unchanged on both days. The stock rose by its daily 6.9 percent limit to close at NT$20.10 Monday in Taipei. Innolux climbed 3 percent to NT$48.40.

Bloomberg News

(HK Edition 11/17/2009 page2)