Teco Electric & Machinery Co's decision to scrap plans to buy rival appliance maker Sampo Corp was one of many such moves in Asia in the first quarter, as the value of announced mergers slumped to its lowest since 1999.
Mergers and acquisitions in Asia outside Japan fell 58 percent to US$24.7 billion in the three months to March 31, as buyers delayed purchases after the Sept. 11 terrorist attacks on the US hit a global economy already headed for recession.
"The key issue is CEO confidence post-nine-11," said Kalpana Desai, head of mergers and acquisitions at Merrill. "Confidence is re-emerging. While volumes might be down, I'm optimistic."
Optimism stems, in part, from the first purchase abroad by a Chinese company since Beijing began to shift to a market economy about 20 years ago. CNOOC Ltd, China's dominant offshore oil producer, agreed to pay US$585 million to Repsol YPF SA, Spain's biggest oil company, for oil and gas fields in Indonesia. There may be more. Beijing is urging other state-controlled oil companies to buy oil fields overseas to replenish dwindling reserves at home. Merrill Lynch & Co advised CNOOC.
Salomon Smith Barney, the investment banking unit of Citigroup Inc., led the advisers on Asian transactions outside Japan in the first quarter, helping on five takeovers worth about US$5.7 billion. Deutsche Bank AG ranked second followed by Merrill Lynch & Co, JP Morgan Chase & Co and Goldman Sachs Group Inc. More than 945 transactions were announced in the first quarter in Asia, down from 968 a year earlier -- though up from the 850 in the first three months of 2000. The average size of the deals fell to US$26.1 million from US$60 million a year ago. That means banks are earning fewer fees, putting pressure on them to cut advisory staff.
"It's been a dry patch for the industry," said Harry van Dyke, head of mergers and acquisitions at Morgan Stanley in the Asia Pacific region. Still, "strategic discussions continue to take place, at least among our own client base."
The failure of Enron Corp, once the biggest energy trader in the world, Global Crossing Ltd, the world's No. 1 fiber-optics operator, and other companies is damping activity, Van Dyke said.
"The world has become more cautious as businesses digest the fallout," he said.
That's led some companies to pull out of purchases. Teco pulled out of its NT$24.2 billion (US$691 million) share swap purchase of Sampo after the target's share price fell a third. In Korea American International Group gave up on buying three Hyundai Group financial companies after South Korea said it couldn't provide a guarantee against hidden debt.
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