Teco Electric & Machinery Co (東元電機) said it scrapped its NT$24.2 billion (US$691 million) plan to buy rival Sampo Corp (聲寶家電), scuttling the creation of Taiwan's largest home-appliance maker as the companies adopt different strategies to counter competition in the industry.
The takeover was based on a share-swap ratio that soured, Teco said in a statement, after the company posted losses and its share price slumped by a third since it announced the tie-up in March of last year. Sampo remained profitable and lost only 9 percent of its share value in the same period.
"It's an earnings issue," said Nathan Lin (
The parting of ways reflects a divergence of corporate strategy as well as earnings. Sampo has fired half its staff since the middle of 2000 and shifted production to China. It's now focused on forming alliances with global vendors for sales and marketing. Teco, slower to jump into China, began diversifying into telecommunications. It owns about 27 percent of Tecom Ltd (東訊), a company that makes and sells phone equipment.
"We're now benefiting from restructuring over the past two to three years, while Teco's restructuring plan has lagged," said Polar Hsieh (謝國雄), executive vice president of Sampo. "If Sampo's profitability is better than Teco's, that affects the share-swap ratio." Teco Chief Financial Officer Sophia Chiu wasn't available for comment.
Last year, Teco announced it would offer one of its shares for every 1.3 of Sampo's 1 billion outstanding shares in a takeover valued at NT$24.2 billion in shares and assumed debt.
At the time, Teco said the move would improve the company's competitiveness and cut costs ahead of Taiwan's entry into the WTO. Teco, which has a market capitalization 1.6 times larger than Sampo's, went on to report losses in the second and third quarters.
Sampo shares this month have risen 48 percent and are trading at seven times estimated 2002 earnings. In the same period, Teco's shares gained 15 percent and its price-to-earnings ratio dropped to 10 times earnings from 19 last year. The companies, which both manufacture air conditioners, refrigerators and washing machines, in addition to other products, agreed to terminate the merger plans to "protect both companies' and shareholders' rights," Teco said.
Sampo probably won't look for another partner in Taiwan, though it may form an alliance with a foreign company, Hsieh said.
"Sampo's focusing on building an efficient services network on the island," Lin said. "It may form alliances with global vendors and provide maintenance services in Taiwan."
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