Mon, Apr 23, 2007 - Page 8 News List

Editorial: The nation needs a `takeover' policy

The announcement last Tuesday by the Carlyle Group-led consortium that it was scrapping a NT$182 billion (US$5.48 billion) bid for Advanced Semiconductor Engineering Inc (ASE) didn't seem to have caused anybody any pain.

Investors welcomed Carlyle's withdrawal and bought more ASE stock as they believed the firm's true value was higher than the Carlyle bid price of NT$39, which had held back the stock's value since the bid was announced at the end of November.

The government wasn't unhappy either as it didn't want to see an important Taiwanese high-tech company fall into foreign hands.

The deal, announced by the Washington-based private equity firm on Nov. 24, would have been the largest-ever buyout in Taiwan. It was dropped after the companies failed to agree on a higher offer price, although it was never made formal because the companies could not move forward without gaining regulatory approval from the government.

For the government, the deal was never just about one company. As far as we know, the government was still working on its lengthy process of consultations with the relevant administrative agencies when the deal collapsed.

Though it was never said, it is virtually indisputable that what drew the government's attention to the deal was its grave concern that ASE would have been taken private by the US investors if the deal had succeeded. In other words, ASE, the world's largest chip packaging and testing company, would have delisted itself from the local bourse if it had agreed to Carlyle's offer. This would have posed a serious loss to the nation's capital markets, where ASE currently accounts for around 1 percent of total market value of the TAIEX.

One of the major concerns the government had about the deal was its possible effect on cross-strait trade policy, as other Taiwanese high-tech firms might have followed suit and used the delisting tactic to circumvent the government's ban on China-bound investment.

The government must now take the chance to review its policies regarding the semiconductor industry as potential mergers and acquisitions in this strategic sector are still in the pipeline, now that cyclical volatility is disappearing and the sector offers a favorable investment environment. Market speculation last week was that other private equity firms -- including Kohlberg Kravis Roberts & Co, Texas Pacific Group and Blackstone Group LP -- were interested in talking with ASE about a higher bid than Carlyle's.

The semiconductor industry is very important to the nation's economy and therefore the government must move quickly and efficiently to ensure that there is no repeat of past five months' inconsistency when dealing with possible future bids in the sector.

What the government has learned from this experience and intends to do about it -- whether building a "firewall" against the wealth of private equity firms, drafting new regulations that deal with these foreign funds, or establishing a more transparent and straightforward process for mergers and acquisitions in the technology sector -- is not known.

Whatever the government does, it should remember that increased mergers and acquisitions activity would help the nation gain global attention and what is required is not a quick-fix "policy patchwork."

We need a policy geared for the long term and a government that can implement the policy with determination and consistency. Otherwise there will be a cost -- the government's credibility, its integrity and a breakdown in the rule of law.

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