Saturday, November 20, 2010

Hejian/UMC deal blocked by FSC

Some very interesting news caught by the blog column of Robin Kwong at the Financial Times: Taiwan's Financial Supervisory Commission (FSC) has blocked a deal between a Chinese and Taiwan firm.....
UMC wanted to take full ownership of He Jian, a Chinese chipmaker that it helped set up years ago in a controversial move, which resulted in UMC being fined T$5m (US$155,000) for illegal investments in China. UMC has a 15-per-cent stake in He Jian, but wanted to buy the remaining 85 per cent as well.

UMC said on Thursday that its board has decided to terminate the merger agreement with He Jian because it could not clear Taiwanese financial regulatory hurdles. Under the agreement, UMC would have paid for the deal by granting He Jian’s owners shares and share options as well as cash.

“However, an investment regulation governing foreign holdings of Taiwanese securities, coupled with other restrictions…precluded the issuance of common shares or ADR [American Depository Receipts] as payment options,” UMC said in a statement.

UMC said He Jian’s shareholders had not yet decided on whether they would accept an all-cash offer, and UMC would “continue seeking possible alternatives with He Jian shareholders” for an acquisition.
UMC is the world's second largest contract chipmaker. Its announcement that the merger is terminated but alternatives will be explored is here.

Some of the tale of UMC's relationship HeJian is told in older news stories about the transfer of technology out of Taiwan into the Chinese firm. For example:
The allegations made against [UMC Chairman Robert] Tsao, [UMC Veep] Hsuan and co. centre on claims they invested in Hejian. The Chinese foundry was founded by a number of ex-UMC executives in 2001. Tsao maintains he simply advised the founders on business matters, and UMC says it has entered into no deal with Hejian, either to provide it with funding or technology. In Taiwan it is unlawful to invest in any Chinese technology-related company without first winning the approval of the Taiwanese Government.

However, it has been claimed that Hejian staffers not only had access to UMC's intranet, but the company's fab incorporated UMC-patented technology, seemingly without protest from the Taiwanese company. It's alleged UMC tacitly licensed its technology to Hejian.

Investigators from Taiwan's Ministry of Justice raided UMC's HQ and the homes of executives in February seeking evidence to support these allegations.

UMC has said it would like to invest in Hejian, and in March 2005 put in place a scheme to put $110m into the company via the correct channels. Tsao had already said that UMC would be keen to acquire Hejian at some future time.

The UMC-Hejian case has yet to come to court, though Tsao and 23 other executives, including Hsuan and Hejian chairman J. H. Hsu, were last year named as defendants when the case is eventually heard by Taiwan's Hsinchu District Court.
FT's bizarre complaint that this represents "excessive caution" notwithstanding (because everyone knows that Chinese mean only love and sincere friendship for Taiwan, and never use connections to steal outside technology from foreign firms), this move by the FSC is an interesting wrinkle. The financial and trade agreements between the KMT administration and its CCP ally are designed to integrate Taiwan into China's economy so firmly that Taiwan cannot be extricated.

Recall that the FSC blocked the deal for AIG's Nanshan Unit a few months ago because of the iffy nature of the Chinese buyer. The question is -- is this solely a decision unique to this case (perhaps to punish UMC for helping to start HeJian in the first place?). Or is this a subtle policy designed to prevent deeper integration of Taiwan's financial industry with China by determining, on a case by case basis, that such investments are unsuitable?

Only time will tell.
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jerome in vals said...

Niigata halts plan to sell plot for consulate amid outcry

By Staff writer Minoru Matsutani
Saturday, Nov. 20, 2010, Japan Times

"The Niigata Municipal Government has frozen a plan to sell city land to China for a consulate after receiving about 1,000 calls and e-mails opposing the sale, a city official said Friday."

jerome in vals said...

Sorry, but the above requires a backgrounder.

First, Zhongnanhai wanted a consulate in Okinawa. But the sensitivity of a Chinese consulate in an area occupied by US bases convinced the Japanese governement to turn down the request.

Then, Niigata, a port on the Sea of Japan, became China's next gambit. For communications sakes, it made pefect sense, since the PLAN is renting a port facility in North Korea, across the Sea of Japan from Niigata.

The project called not only for a huge compound for the consulate, but also a whole "Chinatown" leading to it. That Chinatown would accomodate 700 Chinese pop and mom businesses.

There are other 'Chinatowns" across Japan, the most famous being located in Yokohama. The hitch here is that where historical Chinatowns were developped over time on the basis of private enterprise, the Niigata project hinges on Zhongnanhai's specific interests and planning.

Concerned citizens have been up in arms for months to derail a plan they have been equating to the granting of a Chinese Concession on Japanese territory.

On anothet note, I learnt that the DPJ appointed Japan-hater cum laude Gregory Clark on a panel of experts tasked with informing Japanese immigration policies.

Dang! During my Japan years, I could never have dreamt myself espousing Japanese conservatives' viewpoint. Formosa is turning me Japanese.

Michael Turton said...

Dang! During my Japan years, I could never have dreamt myself espousing Japanese conservatives' viewpoint. Formosa is turning me Japanese.

Hahaha. Yes, I know what you mean.

It's interesting that Gregory Clark got that appointment. He's a total loon.

Dixteel said...

What's really weird about these foreign mag like FT is that they seem to always see closer and closer business between China and Taiwan as a matter of course. I don't know what kind crap they are eating.

Maybe China's CCTV should buy FT, it's probably not worth much anyway.

Michael Turton said...

Dix, i totally agree. The way this analysis is conducted in a political vacuum is both exasperating and frightening. Hopefully FT is merely making a bow in the direction of the Neoliberal God.