Tsinghua's $2.6 bln Taiwan deals to face unprecedented government scrutiny

Powertech Technology

22/02/2016 10:16

* Chinese state-backed firm seeking quarter of three chip 
firms 
    * Made $2.6 bln worth of offers during Taiwan election 
    * President-elect called offers "a threat" 
    * Tsinghua required to make case to review panel -officials, 
execs 
 
    By J.R. Wu 
    TAIPEI, Feb 22 (Reuters) - China's Tsinghua Unigroup's $2.6 
billion offer for stakes in three Taiwanese chip firms will 
undergo unprecedented scrutiny by a new government less friendly 
toward its giant neighbour, complicating the chance of success. 
    The Chinese state-backed conglomerate aims to buy into the 
island's technology sector as a step toward building China's own 
semiconductor industry. But the timing of its offers, during a 
Taiwan election in which deepening cross-straits economic ties 
was a hot topic, left the firm a target of political attack.     
    Following civil war in China, Nationalist forces fled in 
1949 to Taiwan which has been self-ruled ever since. But China 
regards it as a wayward province to be taken back by force if 
necessary, fuelling fears among Taiwanese of Chinese influence 
in the island's foremost industries. 
    Such fears prompted the government to subject Tsinghua's 
offers to review by the newly elected parliament, national 
security advisors and financial regulators, and to request its 
management team make its case personally to a government panel, 
Taiwanese regulators and executives at the targeted firms said. 
    "We said from the start that it will not entirely be 
approved," said Emile Chang, executive secretary of Taiwan's 
Investment Commission, the agency under the Ministry of Economic 
Affairs in charge of reviewing inbound and outbound investment. 
    "Whether one or two of the cases can pass, we need to see 
the review process," Chang told Reuters at a recent briefing. 
    Tsinghua is aware it may not receive approval for all three 
deals due to the change in government, but overseas acquisitions 
will continue to focus on Taiwan and the United States, a person 
familiar with Tsinghua's thinking told Reuters, declining to be 
identified due to the sensitivity of the matter. 
    Tsinghua, which is yet to submit investment plans to Taiwan 
regulators, declined to comment when contacted by Reuters. 
     
    NATIONAL SECURITY 
    Tsinghua made offers in quick succession late last year for 
a quarter each of chip testing and packaging companies Powertech 
Technology Inc  6239.TW , ChipMOS Technologies Inc  8150.TW  and 
Siliconware Precision Industries Co Ltd (SPIL)  2325.TW . 
    The company plans to inject a total of $2.6 billion into the 
three in exchange for stakes plus one board seat at each with no 
management control. The offers came after Micron Technology Inc 
 MU.O  rejected Tsinghua's informal $23 billion takeover bid on 
the presumption of U.S. national security concerns.  urn:newsml:reuters.com:*:nL4N1131XG 
    "Security and business concerns over relying on Chinese 
suppliers include intellectual property and trade secrets 
protection, competitiveness, and innovation," said Rupert 
Hammond-Chambers, president of the U.S.-Taiwan Business Council, 
in a commentary labelling Tsinghua's moves "hostile". 
    Taiwan's new government will therefore need policies that 
keep businesses free of Chinese control to ensure Taiwan remains 
a major player in the global technology supply chain, he said. 
     
    CEDING CONTROL 
    President-elect Tsai Ing-wen of the independence-leaning 
Democratic Progressive Party (DPP) - which was elected by a 
landslide - said when campaigning the offers were problematic 
and could lead to Taiwan ceding control of its tech industry. 
 urn:newsml:reuters.com:*:nL3N1442KB 
    "From the country's point of view, this is not just a 
business deal," said Wu Tsong-tseng, a DPP adviser on technology 
issues during the election. 
    Shareholders of Powertech and ChipMOS approved the plans in 
January as they seek capital to expand and survive in a global 
chip sector experiencing record merger and acquisition activity. 
 urn:newsml:reuters.com:*:nL3N14Z28P  urn:newsml:reuters.com:*:nL3N15B42D  urn:newsml:reuters.com:*:nL3N13I1GI 
    SPIL scheduled a shareholder vote for Jan. 28 but postponed 
due to the political timing, spokesman Byron Chiang said. 
 urn:newsml:reuters.com:*:nL3N1403BT 
    Powertech Chairman D.K. Tsai said the other deals, announced 
six weeks after its own, were unexpected. He said he was 
committed to seeing through Powertech's application and that he 
would "respect any (government) decision." 
    "I am regretful that this matter became emotional for 
society and a political factor," Powertech's Tsai told reporters 
after shareholders accepted the offer. 
 
 (Reporting by J.R. Wu; Additional reporting by Yimou Lee in 
HONG KONG; Editing by Christopher Cushing) 
 ((jr.wu@thomsonreuters.com; +886 2 2500 4881; Reuters 
Messaging: jr.wu.thomsonreuters.com@reuters.net)) 
 
Keywords: TSINGHUA UNIGROUP TAIWAN/M&A