Back in 2010, the Hong Kong-listed battery maker China Strategic led a consortium hoping to acquire Nan Shan, one of Taiwan’s largest life insurers, from an ailing AIG. But the $2.5 billion deal soon flashed up red on the radar of Taiwanese regulators, who were suspicious that the buyers were backed by mainland Chinese money. China Strategic repeatedly denied any mainland China connection but the deal was rejected by the Taiwan government.
Fast forward to today, and cross-strait relations are still tinged with distrust, despite closer economic ties between Taipei and Beijing. No great surprise, then, that China Mobile announced last week that it has given up on its four-year wait for approval to buy a 12% stake in Far EasTone, Taiwan’s third-largest mobile carrier.
The two companies first signed the proposed $545 million tie-up in 2009, a year after Taiwanese president Ma Ying-jeou came to power with a pledge to improve relations with China (see WiC17). At the time of the deal, WiC expressed scepticism that it would get done. After all, if Taiwan’s authorities were worried about interest in the finance sector from China Strategic, they were even more likely to be freaked out by China Mobile, the mainland’s largest state-owned telecom carrier.
China Mobile says the deal is off because of unmet “conditions”.
An official at Far EasTone said those obstacles included Taiwanese regulations barring Chinese investment in the island’s mobile and fixed-line telecoms operators.
So was the deal doomed to fail? Yes and no. Just two weeks ago WiC reported that ICBC had become the first major Chinese bank to announce a cross-strait tie-up, paying $680 million for 20% of SinoPac Financial. It was the first time a Chinese firm had been permitted to invest in a Taiwanese bank.
China Mobile’s experience looks different. Although Beijing and Taipei have signed a series of trade agreements lifting tariffs and allowing for equity stakes in sectors previously closed to both parties, the collapse of the telecom deal points to the difficulties that remain in closer integration between the political rivals.
“Things are more complicated in the telecom industry,” says Parker Wu, a fund manager at Agriculture Bank of Taiwan. “The government is a bit more cagey about Chinese influence in those companies as they possess personal information and that becomes a matter of national security. Taiwan and China’s relationship isn’t that close yet.”
Of course, this is not the first time China’s telecom firms have faced paranoia about the potential for overseas M&A laying the foundation for cross-border snooping. Back in October a US congressional committee barred Chinese networking equipment giants Huawei and ZTE from selling to American networks because it was worried that the move could provide opportunities for Chinese intelligence services to tamper with US telecommunications infrastructure. (Huawei has tried to lobby against the ban. Meanwhile the company sent out mixed messages this week when a senior executive talked about “abandoning” the US market, a claim the firm’s spokespeople later retracted.)
Interestingly, the collapse of China Mobile’s bid for Far EasTone got minimal coverage in China. Most of the major news portals dedicated very little space to the story although one that did mention it, the Beijing Times, tried to play up the positives.
Despite the deal being dead, the newspaper pointed out that there is still the potential for a strategic tie-up between the two companies. Far EasTone says the two carriers are now exploring the potential of virtual network operation (VNO), which lets carriers lease out capacity on their networks to third parties who then sell telecom services under their own brand names. The premise is that VNOs are less sensitive because they don’t require that the third parties are granted licences to access the equipment used to operate networks.
Despite the failure to close the much-delayed deal, the two companies also signed an updated agreement to cooperate on retail channels, products, content and cloud services, Far EasTone spokeswoman Alison Kao said. “We will resume the talks [on a stake sale] with China Mobile when Taiwan law allows,” Kao told media.
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