MediaTek, MStar Merger Hits China Bump 中国审查拖累联发科收购晨星
A worrisome trend is developing at China’s anti-monopoly regulator, which is showing a growing tendency to take far too long to make decisions on global M&A deals compared with regulators in other major markets. This time the Ministry of Commerce, which reviews all major global M&A under China’s anti-monopoly law, is creating delays for a Taiwanese deal that would see a merger between low-cost smartphone chip maker MediaTek (Taipei: 2454) and smaller rival MStar (Taipei: 3697).The pair initially announced the deal in the middle of last year, and hoped to have it completed by January. But due to delays from the Commerce Ministry in its review process, Mediatek has just said it is postponing its target closing date by about half a year with an aim of completing the merger by August. (Chinese article; English article)
This deal is a very important one for China, since MediaTek and MStar are both major suppliers of chips for low-cost smartphones that are quickly becoming a major product area for Chinese manufacturers including Huawei, ZTE (HKEx: 763; Shenzhen: 000063), Lenovo (HKEx: 992) and Coolpad. I’m not extremely familiar with the market, but do know that there are at least a few other relatively major players in the same space, including names like Marvell Technology (Nasdaq: MRVL) and Spreadtrum (Nasdaq: SPRD) also producing similar chips.
All that said, it’s clearly important that China make the correct decision in this case, since these chip makers are one of the key suppliers to low-cost smartphone makers. But at the same time, most major countries have strict time limits for major M&A decisions, usually within around 3 months of an application. Even Canada’s recent decision to approve the controversial purchase of Nexen by Chinese oil exploration giant CNOOC (HKEx: 883; NYSE: CEO) only took about 6 months, which included several extensions while Ottawa considered the deal.
So for China to require more than a year to consider this smaller deal seems a bit excessive. This kind of drawn-out delay can wreak havoc on a company’s finances, as was demonstrated back in January when MediaTek had to scrap plans to raise cash by issuing shares due to the delays in the regulatory approval process. These delays are becoming far too common in China, which has shown a growing tendency to take months more than other major countries to approve big M&A deals.
Earlier this year US fruit giant Dole (NYSE: DOLE) was forced to restructure the sale of its Asia operations to a Japanese buyer due to delays in getting approval from China; and just last month British consumer products giant Unilever (London: ULVR) announced that similar delays were holding up the planned sale of its Skippy brand of peanut butter. (previous post) Before that, lengthy review processes at the Commerce Ministry also held up major global tech deals, including Google’s (Nasdaq: GOOG) purchase of Motorola Mobility, and Nokia Siemens Networks’ purchase of Motorola’s networking equipment business.
I do understand that China is less experienced that regulators in the US and Europe in understanding and approving these big deals, which often have implications for global markets. But at the same time, Beijing needs to understand that its delays create major headaches and financial difficulties for companies, forcing them to remain in a holding pattern while they await approval. Accordingly, Beijing needs to give the Commerce Ministry more resources to review these major deals, and also impose strict instructions that all reviews be completed in a brief but reasonable time frame.
Bottom line: China’s lengthy review of the merger of 2 Taiwanese chip makers demonstrates once again the regulator’s growing reputation as an obstructionist for global M&A.
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