The government faces a dilemma over foreign buyout firms. It welcomes the injection of foreign funds to boost the economy and enhance competitiveness, but fears the possible side effects.
Over the past two decades or so, these private equity funds have been crucial in corporate finance and restructuring worldwide. At the same time they have been labeled "vulture funds" for the excessive profits they made.
Private equities had not really targeted Taiwan until recently -- when several of them looked into banks and cable TV networks and saw an opportunity for potential, since the government had been trying to consolidate the financial sector and was pushing the move from analog to digital TV.
But buyout firms may experience a dramatically changed environment in Taiwan this year, as sales of billions of dollars in local equity have prompted a debate over whether foreign funds are touching upon a most sensitive nerve -- cross-strait policy. Do they pose a shock to the system? Or are they simply not paying enough?
Last week, the government's prolonged review of the application by a Carlyle Group-led consortium to buy Advanced Semiconductor Engineering Inc (ASE) prompted concern from the US-Taiwan Business Council. It warned that Taiwan could lose its attractiveness to foreign funds.
Concerned that Carlyle may consider taking ASE private -- and that other Taiwanese high-tech firms could follow suit to circumvent the bans on China-bound investment -- the Ministry of Economic Affairs has proposed amending the regulations on company buyouts. According to the ministry's preliminary proposal, a thorough examination of buyout firms' applications would be required if they are purchasing up to a 25 percent stake in a local listed company or in firms in the banking, broadcasting and telecommunications sectors.
The National Communications Commission actually took the first step of looking at buyouts more rigorously when it conducted a face-to-face interview with MBK Partners executives last Friday over the firm's proposed investment in China Network Systems Co (CNS), the nation's second-largest cable TV provider. The commission wants to know whether MBK would own more than the 60 percent limit for overseas investors through its indirect holdings in CNS. The commission said the interview, along with its demand for MBK to submit more documentation on the planned acquisition, was to ensure the foreign ownership rules set forth in the Cable Radio and Television Law (
The Carlyle Group, in comparison, was lucky. It did not need an interview last July over its bid for a 59.29-percent stake in Eastern Multimedia Co. The Macquarie Media Group's purchase of Taiwan Broadband Communications (TBC) from Carlyle in December 2005 also met with little regulatory screening except some paper work.
Against this backdrop, one has to wonder what caused the government's shift in attitude? Is Taiwan moving to build a firewall against private equities, as South Korea appears to have done with its probes into Lone Star and other foreign buyout firms for alleged irregularities, or that of China where Carlyle has had trouble in acquiring a construction machinery firm for nearly a year?
Protectionism does appear to be on Taiwan's agenda when it comes to buyout firms. But as long as there are attractive buyout opportunities, private equities will continue to thrive.