Mon, Oct 16, 2006 - Page 8 News List

Editorial: Bridging the gap crucial in M&As

The buzz about merger talks between local and foreign banks in the wake of Standard Chartered's move to acquire Hsinchu International Bank two weeks ago has diverted public attention from BenQ Corp's failure to turn around its money-losing German handset unit

That's good news for BenQ, given the growing speculation that it might drop its own-branded cellphone business after the company announced plans last month to discontinue investment in its German subsidiary BenQ Mobile and seek bankruptcy protection. Worse, the German public and political opinion have turned against Siemens, as well as BenQ, because of their commitment to retain the jobs of the unit's 3,000 employees in Germany.

So far, the quest to acquire trusted foreign brands to help Taiwanese companies expand their sales and image internationally has not been successful.

Three years ago, consumer electronics brand Sampo Corp made a last-minute exit from a nearly US$100 million deal to buy a controlling stake in the Nuremberg-based Grundig AG, when European banks refused to underwrite a loan of US$430 million for the purchase. Sampo said that without the loan, the ailing Grundig could have depleted its financial resources in just a few months. But Sampo was already having trouble managing skeptical regulators, unions and other stakeholders throughout the acquisition process. That did not bode well for its ability to handle the assets of its German target.

Toppoly Optoelectronics Corp is still trying to integrate the management of Royal Philips Electronics' mobile display unit, which it bought almost a year ago in a bid to become the leader in the world's small and medium-sized display panels.

Whether Toppoly can bridge the geographical and cultural divides between its Dutch unit and its Taiwanese headquarters remains questionable. The company is scheduled to embark on a new round of corporate reorganization by the end of this month.

In an era of international mergers and acquisitions (M&A), strategic considerations are what draws attention of potential buyers looking to expand their regional operations. Standard Chartered was attracted by the Hsinchu bank's underexploited branch network, particularly in the area of wealth management and wholesale banking. Both BenQ and Sampo were tempted by their German counterparts' established brand names and intellectual property. Toppoly was interested in the customer base and manufacturing capacity the Philips subsidiary had on offer.

There is plenty of blame to go around when it comes to failing to achieve a cross-border M&A. In bidding farewell to its German subsidiary, BenQ blamed constant delays in handset research and development and a non-competitive cost structure for the failure of its foray into Western markets. Anyone who believed those claims, however, should really take a minute to consider the real challenge -- integrating the management of the company's local and foreign business units.

For example, disagreements or miscommunication between BenQ's German management and Taipei headquarters over the development process of new products and the speed of reorganization highlight some of the difficulties of integration. BenQ's decision to cut its financial support for the German subsidiary was condemned as rash and irresponsible in Germany, while it was deemed rational to many in Taiwan.

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