The government portrayed the Carlyle Group’s proposed acquisition of Advanced Semiconductor Engineering and the sharp rise in ASE shares yesterday as a sign of confidence in Taiwan and its stock market.
But legislators and analysts voiced concerns that the offer would trigger a domino effect leading to a series of takeovers of local companies by foreign investors.
“The Carlyle Group’s has accurately seen the potential of Taiwan’s market,” said President Chen Shui-bian yesterday after ASE shares rose a maximum NT$2.45 to close at NT$37.95. “Buying ASE is the best choice for investing in Taiwan and shows confidence in Taiwan. It’s an affirmation of Taiwan’s high-tech industry.”
Noting that Taiwan’s stock index closed yesterday at 7,498, a six-year high, Chen said it was definitely not a dream to think that the Taiex could hit the 10,000-point mark in the near future.
Democratic Progressive Party Legislator Kuo Chun-ming said, however, that the possible takeover of ASE by Carlyle made him nervous that other large Taiwanese companies would follow suit to get around the government restriction limiting listed companies to invest 40 percent of their net worth in China. That might compel the government to loosen the restriction, Kuo said, which could lead to Taiwan losing its high-tech niche.
“China can learn our advanced technology quickly since we both speak Mandarin,” Kuo added.
DPP Legislator Tsai Chi-chang echoed Kuo’s fears.
“It is good that foreign investors are confident in Taiwan, as seen by Carlyle’s interest in acquiring ASE, but we are curious about what ASE’s next step would be,” Tsai said. “I’m afraid that ASE will leave Taiwan to avoid the government’s restriction. It would trigger a domino effect leading to a series of takeovers by foreign investors, which would have an adverse impact on Taiwan’s economy,” he stressed.
Meanwhile, the Financial Supervisory Commission, Taiwan’s main financial regulatory body, seemed surprised by the move.
“Carlyle’s proposed acquisition of ASE seems to me very unusual because ASE did not summit its application to the Investment Commission before the company announced to the public that it would sell 100 percent of the company’s stock to the Carlyle Group,” said FSC Vice Chairwoman Susan Chang (眎╭浆).
In addition, Chang said her agency suspected there may have been some insider trading prior to the announcement because ASE’s share price rose considerably in recent weeks.
“The Taiwan Stock Exchange Corporation has started to monitor the proposed acquisition of ASE,” Chang said, adding that “the deal has not yet been approved by the Investment Commission.”
Minister of Economic Affairs Steve Chen (朝风订) yesterday said that he will
meet with ASE Chairman and Chief Executive Officer Jason Chang to learn more about the deal’s details.
But Chen contended that, “the acquisition should not have any negative effects on Taiwan’s industrial sector.” He suggested the MOEA was leaning toward agreeing with the acquistion once ASE had submitted application documents.
Cabinet spokesman Cheng Wen-tsang (綠ゅ篱) argued that the controversial restriction on investment on China did not have a direct effect on the deal, but he said the government would examine the policy to avoid a possible domino effect.
That may be difficult. Citing institutional investor research, local media reported yesterday that 30 local companies, including the world’s second largest contract chip maker United Microelectronics Corp, along with Acer Inc. and Chunghwa Picture Tubes, have been targeted by suitors.
“It makes sense that Taiwanese electronics companies are selling themselves to foreign investors so that they can avoid Taiwan’s investment restrictions in China and their funds will be used more efficiently,” Charles Chen (朝現糴), who manages US$3.7 billion at JF Asset Management Co. in Taipei, told Bloomberg yesterday.
Three international financial services groups, Credit Suisse Group, JP Morgan Chase & Co and Goldman Sachs Group, Inc. all felt Carlyle’s offer price of NT$39 per share was too low - offering less than a 10 percent premium over Friday’s NT$35.50 closing price - and expected it would have to push its offer higher.
“It will not be easy for other ASE shareholders to agree with this proposed acquisition, so Carlyle may increase its current offer price,” Credit Suisse said.
ASE Chairman Jason Chang yesterday told his company’s employees in a letter that he would still remain in his current position and make employee benefits a top priority. In his letter, he emphasized that Carlyle’s acquisition would not have a negative impact on employees’ interests.