beyondbrics

If there’s one consolation for Kohlberg Kravis Roberts (KKR) and Pierre Chen, Yageo’s chairman, after the Taiwan government rejected their bid to take Yageo private, it’s that they were neither the first, nor likely the last, to have run afoul of Taiwan’s finicky regulators.

Given the tenuous arguments presented by government, the latest rejection is likely to dampen foreign private equity interest in Taiwan. 

Taiwan’s Investment Commission has argued that the deal would leave Yageo, an electronic components manufacturer, over-leveraged. It also argued that minority shareholders were not given enough information to judge whether the offer price was a good deal.

Thursday’s decision follows a series of rejections by the Taiwanese government. In 2007, Carlyle’s failed to privatise ASE, a chip packaging firm,  and in 2009 China Mobile’s offer to buy part of Far Eastone was blocked.

In fact the few successfully completed deals in Taiwan in the past few years were all exits: life insurers including Prudential, ING, and Metlife left the island. Carlyle and MBK both sold off their respective cable TV businesses, although Carlyle was forced to restructure the deal after regulators raised objections.

As CY Huang, chairman of the Taiwan Mergers & Acquisitions and Private Equity Council, an industry body, put it, “Taiwan is already a marginal market [for international investors]. If the government still puts so many obstacles in the way, then people just say ‘forget about it’.

But what sort of deals might be reconsidered now, in light of the Yageo rejection? The more obvious line of thinking, and one that the government espouses, would be that the improvement in cross-Strait relations over the past three years, together with Taiwan’s strong export economy, will attract foreign businesses and investment to Taiwan. Rules are also being slowly relaxed to allow Chinese money to invest in Taiwanese companies.

Yet Chinese investment in Taiwan remains negligible, and as the above list of recent deals show, there has been nary a foreign ‘buy’ in Taiwan over the past three years.

Instead, an alternative theory states that the most attractive Taiwan-owned assets now are those in China. Taiwanese consumer goods and services companies were among the earliest to enter China and many now have sizeable operations or well-recognised brand names on the mainland. Foreign investors hungry to access China’s fast-growing domestic consumption market may be more than willing to pay a premium to make acquisitions.

The key question now is – would they still be willing to do so if the deal has to go through Taiwan’s troublesome regulators?

Related reading:
China Mobile, Far Eastone: deal on?, beyondbrics
KKR and Yageo: going private, beyondbrics