On April 17, Freddie Liu, financial controller and vice president of Advanced Semiconductor Engineering (ASE), announced that Carlyle’s attempted buyout of ASE, the world’s largest semiconductor packaging and SATS (Semiconductor Assembly and Testing Services) enterprise, had failed.

One week prior to this announcement, ASE chairman Jason Chang told CommonWealth Magazine in an exclusive interview: “The way I see it, if you don’t take into account the impact of our delisting on the Taiwanese financial market as a whole, it’s a good thing.” According to Chang, “The only drawback is that we will have to delist. That’s something the Taiwanese government is not happy to see. They always want us to go back on the stock exchange. This is the crux of the problem.”

The inability of both parties to agree on a sale price caused the deal to fail. After initial negotiations, Carlyle offered to increase its purchasing price by NT$0.5 to NT$39.5 per share, which is significantly lower than the NT$70 per share for Siliconware Precision Industries Co., Taiwan’s second largest packaging and SATS enterprise.

Furthermore, the price offered was only half the net value of Amkor, the world’s second largest semiconductor packaging and SATS company. “As the proffered price does not reflect ASE’s worth, we could not support this deal,” said Liu.

The fundamental problem, however, is with ASE’s delisting from the Taiwan Stock Exchange.

The Financial Supervisory Commission (FSC) can breathe a sigh of relief upon the buyout failure, because ASE will no longer be delisting from the TAIEX. This, however, raises another interesting question: Carlyle could have freed ASE from China investment restrictions—how will Chang proceed now that that path is closed to him?

From the time negotiations began until they officially halted, ASE’s buyout announcement had sparked considerable speculation about the company investing in China, putting great pressure on the Ministry of Economic Affairs Investment Commission (MOEAIC).

During those four months, ASE quickly established strategic holdings in China, through mergers, acquisitions and joint ventures, beginning with its acquisition of Weiyu Computerized Embroidery Machines Co. of Shanghai, which the MOEAIC quickly approved.

Advanced Semiconductor Engineering chairman Jason Chang believes, “Taiwan should open up, and not be afraid. The more we open up, the more Taiwan can stand out.”

A Swift Deployment in China

The next move is a planned joint venture with NXP Semiconductor establishing a packaging and SATS plant in Suzhou. The plant has great potential production capability, not limited to lower-end manufacturing. The MOEAIC is currently reviewing the plan for approval, and its decision will prove the first hurtle in ASE’s strategy to expand into China. While ASE share prices soared the day following report of negotiation failure, there was also word that review of the deal could be delayed as a result of high-level government elections. “The real repercussions will depend on the government’s attitude in the future – will it start to be stricter, or will it approve major investment deals quickly?” one analyst observes.

The failure of the Carlyle deal reflects Jason Chang’s meticulousness, courage, and resoluteness. Acutely mindful of figures, Chang made precise calculations with regards to the Carlyle deal. Indeed, he has personally crunched the numbers for many of the company’s financial projections.

In the past, Chang was able to rely on his own deep pockets to quickly expand manufacturing capability, purchasing in quick succession two Motorola plants – in South Korea and in Jhongli County, Taiwan – and an NEC plant in Yamagata Prefecture, Japan, and thus trumping then front-runner Amkor to become the world’s largest semiconductor packaging and SATS enterprise.

This has a lot to do with the Chang family’s rise in real estate as a direct result of the shrewd business acumen of Jason Chang’s mother Chang Yao Hung-ying. This mother and son duo has ridden the ups and downs of Taiwanese business for six decades, seizing every great opportunity as they came along, beginning with Chang Yao Hung-ying’s entry into the real estate market, their great speed and precision in playing the stock market, and finally, their cross-over into the electronics industry.

Shortly before terminating negotiations with Carlyle, Chang had an exclusive interview with CommonWealth Magazine.

Following are highlights from the interview:

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Q: What are your thoughts on ASE’s future development?

A: The overall development of the packaging and SATS industry looks promising. The industry needs to expand, and that poses a great human resource problem for Taiwan. ASE currently employs over 20,000 people in Taiwan and over 30,000 worldwide. A lot more are needed if rapid growth is to be achieved, but relying solely on Taiwan for that supply can only result in bottlenecking.

That is why China is so attractive. Taiwan turns out roughly 20,000 polytechnic graduates per year for a market that requires 40,000, and this disparity will soon cause problems if not resolved by outside factors.

What we are suggesting is that Taiwan must develop an immigration policy in order to acquire quality people. Taiwan has only a foreign labor policy catering to low or unskilled workers for short-term employment. Hong Kong and Singapore are both small countries with immigration policies. If Taiwan doesn’t follow suit soon with its own immigration policy for high-tech professionals, the industry will need to look outside for what it needs.

China turns out over 400,000 polytechnic graduates per year. Their job opportunities aren’t as good as in Taiwan, but they aren’t allowed to come to Taiwan either. If the Taiwanese government were to allow just 10,000 to 20,000 mainlanders to enter every year, that would relieve a lot of the pressure on enterprises to move offshore. Otherwise, our growth will hit a bottleneck, where we can’t hire enough talent, and that will end up slowing down growth.

Impossible to Stop

Q: The U.S. government is allowing American enterprises to set up 12-inch wafer fabs in China for the first time, and Intel is planning to set up such a facility in Dalian. How will this impact Taiwanese industry?

A: From a technical standpoint, it’s impossible to stop. It would be very difficult for Taiwan to take the lead over China on the technology front. Taiwan has a lead in the market-share and management aspects of the industry, but it wouldn’t be that difficult for China to obtain the same technological know-how. China’s current problem is that they don’t have a single packaging and SATS enterprise with over 10,000 to 20,000 employees, and it would be very difficult to develop the capability. Intel too would need to spend a long time on development in China.

We’re not taking business away from Taiwan. We’re taking business away from Japan, Europe and North America. The long restriction on investment in China has placed great development limitations on Taiwan. Truth be told, we have our eyes on the world, not just China and Taiwan. We’re deployed globally. We have plants in Japan, Korea and Singapore. We’re a global company.

At the moment, China is the best place for talent acquisition. India and Vietnam are also on the rise, but there is the language barrier. On the other hand, we could also bring people from there over here, but that proposal is also being blocked.

There is yet great opportunity for development in the semiconductor industry. We’re not taking business away from Taiwan. We’re taking business away from Japan, Europe and North America. Taiwan is saturated. It can’t expand any more. By moving some of it over to the mainland, we can continue to take business from Japan, Europe and the United States. It’s best to make a move like Hon Hai, which only keeps a few people in Taiwan, but ultimately Taiwan has retained the control. That’s better than Richard Chang personally moving to China and setting up a mainland company [SMIC]. That does have a great negative impact on Taiwan.

SMIC Should Thank the Taiwanese Government

“Truth be told, we have our eyes on the world, not just China and Taiwan.” – Jason Chang

Semiconductor Manufacturing International Corporation (SMIC) owes its success to the Taiwanese government. If it weren’t for the Taiwanese government, it would never have gotten off the ground. It’s only because TSMC and UMC haven’t set up shop in China [due to governmental restrictions in Taiwan] that they [China] are supporting SMIC. China is not too impressed with SMIC, because it keeps losing money and performing poorly. But they keep supporting SMIC. With this unfailing support, SMIC is bound to eventually become successful.

Q: Can you give us your take on the Carlyle deal?

A: The Carlyle deal is very simple. Private equity funds are active [in mergers and acquisitions] all over the globe, because interest rates are low and they have abundant capital. They want to acquire good companies, and are interested in ASE because it is quite exceptional in its field. It is to their advantage to invite me to keep running the company as its largest shareholder. If I were to refuse, they would have to back out of the acquisition, because they know nothing about the industry.

Carlyle has also acquired great influence in the semiconductor industry with its acquisition of some of ASE’s upstream companies such as Motorola, Freescale and Philips. I would do quite well in the business with their support, which would allow me to run the company without confrontation or distractions.

The only drawback is that we will have to delist. That’s something the Taiwanese government is not happy to see. So they always want us to go back on the stock exchange. This is the crux of the problem.

The way I see it, if you don’t take into account the impact of our delisting on the Taiwanese financial market as a whole, it’s a good thing. If delisting from the stock exchange has an adverse effect on the Taiwanese market, I won’t be happy to see that either.

On the whole, this is a world trend. The question is whether or not it has a big impact on Taiwan. In the beginning, my thinking was quite straightforward. We were a small company. Maybe some people misinterpreted our actions as having a political side, but that is not so.

More Deregulation Means More Opportunities

But I still believe Taiwan should open up, and not be afraid. The more we open up, the more Taiwan can stand out. If Taiwan stays closed forever, we’ll end up like the Qing Dynasty. Did the closed-door policy work then? No! Japan’s closed-door policy failed too. If the whole world closed its doors, it would spell disaster. And with the Internet so advanced, how are you going to keep things locked up?

Governments should not regulate expansion, whatever their rhetoric. Governments should not regulate expansion, whatever their rhetoric. When it comes to how private companies invest, you can’t strap the cap of national security on our heads, and say, “You’re endangering national security.” That’s departing too far from reality. Some claim we’re handing over our technological know-how to them. Intel has set up shop in China, and the U.S. government doesn’t think it’s a national security concern. If the Taiwanese government ties us up, it will only do harm to Taiwan.

Taiwan should put everything behind its banks and businesses to take the China market. That is the true path that will keep Taiwan alive. The rise of China is a great opportunity. When such a good opportunity has arrived, we’re binding the hands of all our capable, law-abiding talent, everyone we can find. How can we possibly win when our hands are tied?

Does Killing Yourself Equal Loving Taiwan?

Q: A lot of people are saying that ASE is delisting in Taiwan so it can be listed in Hong Kong.

A: Not true. If I were to say that going there would be better for shareholders in the future, there would be nothing wrong with saying that. You can’t completely do everything for the sake of patriotism, out of love for Taiwan. Does killing yourself equal loving Taiwan? I think that doesn’t make sense.

I believe that’s wrong. No matter who holds the political reins, Taiwan must move outward. If Taiwan doesn’t open up to the world, it can only become more marginalized and poor. Taiwan can’t have a closed-door policy. How can an island economy, such a small country, close its doors?

(Interviewed by Sara Wu and Ming-Chun Chen; compiled by Ming-Chun Chen)

Translated from the Chinese by Ellen Wieman

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Chinese Version: 日月光　破局之後的新佈局