No sooner had the government dubbed the proposed buyout of Advanced Semiconductor Engineering Inc (ASE) by Carlyle Group "a sign of faith in the nation's investment climate" and the press lauded the deal as "the largest ever involving a Taiwanese company," than its repercussions in business circles and at the national level were beginning to be felt.
In the 1993 movie Jurassic Park, the chaos scientist Ian Malcolm, played by Jeff Goldblum, argued that "life will find a way" to reproduce, even if the beings concerned -- dinosaurs in the film -- are all females.
The film reminded many in the industry just what happened last Friday when ASE, the world's largest semiconductor packaging and testing company, confirmed it had received an indication of interest from a private equity consortium led by the Carlyle Group, paving the way for the Taiwanese firm to openly invest in China.
The reason why the analogy is a pertinent one is that if ASE agrees to the all-cash buyout by the Carlyle-led consortium -- and provided the government does not oppose it -- ASE will be transformed into a foreign company. At that point, Carlyle will likely apply to delist ASE from the Taiwan Stock Exchange, as long as it secures 75 percent of the outstanding common shares of the local firm. This will in turn allow ASE to circumvent the government's China-bound investment restrictions, especially the present 40 percent investment ceiling of a listed company's net value.
As the buyout has yet to be concluded, the reason why ASE chairman and chief executive officer Jason Chang (
One thing that is certain is that both US-based Amkor Technology and Singapore's STATS ChipPAC -- ranked second and third in the sector, respectively -- have been stepping up their investments in China to undercut ASE's competitiveness while the firm is still waiting for the government to commit itself to action.
If the NT$179.27 billion (US$5.46 billion) buyout of ASE materializes, it will embarrass a government that has worked so hard to encourage local manufacturers to "keep their roots" in Taiwan. It would also pour cold water on a government which had hoped to attract 70 companies to list themselves on the local stock markets next year and 250 companies within the next three years.
It would also mean the loss of another blue-chip company from the local bourse, after Green Point Enterprises Co, a mobile phone casing maker, agreed last week to a buyout deal by US electronics component maker Jabil Circuit and will delist next year.
In the past, buyouts of local firms were usually an isolated phenomenon. Nowadays, the appetite of foreign investors is higher and businesses are more keen on delisting. Several investment banks, including Goldman Sachs, have predicted more foreign investors will follow suit in shopping for other potential acquisition targets in Taiwan, especially those which are undervalued, such as United Microelectronics Corp, MediaTek, Quanta Computer and Lite-On Technology Corp.
Coupled with recent cases of companies that have announced capital reduction plans, the government should be wary of companies that may attempt to delist their stock in order to circumvent China-bound investment regulations. Life will find a way and so do companies. The publicized cases are just the tip of the iceberg.
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