M&A

All talk, no action

Landmark Chinese acquisition unravels in Taiwan

Interference on the line

It had the look of a done deal – right up until it was suddenly undone.

China Mobile’s offer to buy a 12% stake in Far EasTone, the largest Taiwanese mobile carrier was no ordinary one. It was deeply symbolic – and it appeared to have the blessing of both governments.

The bosses were bullish too. China Mobile’s chairman, Wang Jianzhou said he was “optimistic” that Taiwanese regulators would approve China’s first investment in Taiwan.

Analysts seemed equally optimistic and forecast that the $540 million transaction would unleash a wave of similar deals – with Chinese firms lining up to invest across the Taiwan Strait.

Taiwanese investors were also elated. China Mobile’s investment had come on the back of a major policy announcement by Taiwan’s government that eased restrictions on Chinese firms investing in Taiwanese ones. The local stock market shot up more than 15% in the aftermath of the announcement.

But the enthusiasm quickly turned to disappointment, with the Taiwanese authorities’ being more specific last week as to exactly what industries would be open to investment. The government’s list included 101 sectors but telecoms was not one of them; which meant the China Mobile deal was off.

Speaking at a news conference Lai Shih-yuan, chairwoman of the Mainland Affairs Council, explained the Taiwanese government’s position. “This won’t force the government to open the [telecommunications] sector,” she said, referring to China Mobile’s proposed deal. “This is not the right thing to do.”

Lai also said the country’s semiconductor industry, a backbone of the island’s economy, was off-limits too. Taiwan’s Ministry of Economic Affairs then ruled out investment in the state-run firms China Petroleum and Taiwan Power.

The news suggests that Taiwan’s policymakers are not as ready to dismantle the island’s investment restrictions as had been thought. This is frustrating for those arguing for the benefits of closer ties for companies on both sides of the Straits.

Take the China Mobile deal, for instance. Far EasTone’s tie-up with the mainland’s biggest mobile operator had a major revenue advantage; the relationship would have locked in lucrative roaming fees when either party’s subscribers travelled between Taiwan and the mainland.

Additionally, China Mobile saw Taiwan’s more technologically advanced market as a learning ground. A China Mobile stock exchange filing said FarEastone would help the company “better explore future technological trends in the mobile communications market and accumulate advanced technological and operational expertise in areas such as 3G and next generation technology, since Taiwan is in a more advanced stage of development in both 3G-technology applications and value-added services.”

Such technology exchanges will be critical for China Mobile’s future growth, especially as it struggles to deploy the untested homegrown 3G standard (TD-SCDMA). Smaller operators China Unicom and China Telecom were granted two widely adopted standards – WCDMA and CDMA-2000 – respectively (see WiC3).

Despite rumblings that Taiwan regulators’ blocked the deal on national security grounds, a source told FinanceAsia magazine that China Mobile was interested primarily in the strategic benefits of a cross-shareholding. It was not looking for control and would have been unlikely to try to increase its stake.

Perhaps there is still hope for the deal. Douglas Hsu, chairman of the Far Eastern Group, Far EasTone’s parent, told the press that he expected it to go ahead eventually: “If it doesn’t pass this year, we can wait until next year.”

But, in the meantime, it seems likely that China Mobile’s disappointment could dissuade other Chinese companies from trying to do deals in Taiwan.


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