Posted by: Bruce Einhorn on December 1, 2006
The uber-connected Carlyle Group may have some trouble getting deals done in China but is accustomed to having an easy time of it in Taiwan. The internationally isolated Taiwanese government knows that its needs to keep the Americans feeling happy about their island, and one way to do that is to be nice to Carlyle, long a home to former top officials from the Reagan, Bush I and Clinton administrations. No surprise, then, that the Washington-based private-equity group earlier this year won the Taiwanese government approved a $413 million bid by a Carlyle-led group to buy Eastern Multimedia, one of the island’s biggest cable operators.
But is the Taiwanese government going to go along with Carlyle’s latest deal for one of the country’s most important chip industry players? Advanced Semiconductor Engineering, the world’s No. 1 chip packager and tester, announced that last week that it was in talks with a Carlyle-led consortium regarding a $5.5 billion takeover. That would enable ASE to invest in high-end plants in China—something that it can’t do now because of Taiwanese government restrictions. But of course foreign-owned companies aren’t covered by the same limits as locally owned firms, so if Carlyle can pull this off, ASE can then build up its operations in the mainland. That’s been the goal for many Taiwanese chip companies, but few have managed to get to invest in China because of limits imposed by a Taiwanese government worried about yet another local industry relocating to the mainland. If ASE succeeds in turning itself American, other companies would be tempted to follow ASE’s lead.
That’s not an idea that appeals to Taiwanese President Chen Shui-bian. Chen’s party, the DPP, is part of the anti-China camp in Taiwan, where many locals want to give up the fiction that the island is part of China and instead establish an independent Republic of Taiwan. Allowing Taiwanese industry to get even closer to the Chinese is not part of the agenda. So maybe it’s no coincidence then that Taiwan’s regulator on Wednesday said that it’s looking into the Carlyle bid. The official line is that the Financial Supervisory Commission is concerned about insider trading. Who knows, maybe it’s just that. But this also might be a warning shot from the Taiwanese government that there are limits to how accomodating it can be to its American friends.