Collapse of ASE talks spurs private equity rethink

Private equity funds are expected to re-examine their attempts to buy out Taiwanese listed companies after the collapse of Carlyle’s attempt to acquire Advanced Semiconductor Engineering, the world’s largest chip testing and packaging company.

Dealmakers on Wednesday said a combination of restrictions and delaying tactics from the government had driven the US private equity firm to cancel its offer to buy ASE for more than $6bn, and such behaviour was likely to discourage other potential buy-outs.

There has been intense private equity interest in Taiwan over the past couple of years, as the island is home to some of the world’s leading listed technology companies. The government has, unlike Chinese rivals, appeared willing to allow foreign takeovers of assets Beijing would see as strategically important.

Last year MBK Partners, a Seoul-based buy-out firm, purchased the privately owned China Network Systems, the third leading Taiwanese cable TV company to fall into foreign hands in recent years.

Financiers had been predicting a successful buy-out of ASE, the island’s first large-scale “take private” deal, would spark a series of copycat deals in the IT space over the following months. However, much of that optimism has evaporated with Carlyle’s withdrawal.

Dealmakers said the government had demanded that part of ASE be re-listed in Taiwan within 12 months, making it difficult for Carlyle to justify a much higher revised offer. One banker said the government had also raised numerous demands regarding the structure of debt for the buy-out and the company’s post-acquisition gearing ratio.

A foreign lawyer said the approval process for foreign investment had become less predictable, and this would hurt the island’s investment climate. “The government is picking and choosing which deals it wants to discourage, and is not showing consistency in the way it applies laws and regulations,” he said.

The government said it did not disapprove of private equity in general but admitted to concern that Taiwan could lose large numbers of listed companies to Hong Kong. Officials said they therefore wanted to pick which deals to go through.

“We will look at this case by case,” said a senior cabinet official, adding that companies with significant proprietary technology and research and development operations such as Taiwan Semiconductor Manufacturing (TSMC) would be off limits, as they needed “a stable group of shareholders with a long-term commitment”.

The senior private-equity executive said: “The collapse of this deal is not about anti-foreigner sentiment but anti-China. It shows the Taiwan government is ultra-sensitive to its leading companies leaving the stock market.”

Taiwanese companies are subject to tight restrictions on how much they can invest in China, and re-domiciling ASE overseas might have freed the company from the investment caps.

One banker said: “The collapse of this deal is case­specific. ASE is a leading company and a buy-out like this has never been attempted before, so it was natural that politicians got involved. But other buy-out deals might still get done if they are less high-profile.”

The government said it would try to make Taiwan’s markets more competitive, to weaken the incentive for “market shopping”.

A recent crackdown on insider trading was part of a “housecleaning” with that intention, the cabinet official said.

But the government refuses quickly to lift restrictions on China investments. “The cross-Strait restrictions are not in our hands,” said Susan Chang, deputy chair of the Financial Supervisory Commission.

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