China Mobile has terminated its proposed acquisition of a 12% stake in Taiwan’s Far EasTone Telecommunications that was announced almost four years ago, or rather it has allowed the agreement to lapse after failing to obtain regulatory approval, the Chinese telecom operator said in a statement yesterday.
The two firms broke new ground with their agreement in April 2009 as China Mobile would have been the first state-owned Chinese company to make a direct investment in a Taiwan firm in more than 60 years and it was heralded as an important step forward for the cross-strait relations between the two countries.
Those relations had started to thaw the previous year following the election of Ma Ying-jeou as Taiwan president and the two companies hoped that their agreement, which was valued at NT$17.7 billion (about $530 million at the time), would help convince the Taiwan authorities to allow direct investments from mainland China.
And in a sense, perhaps it did. It moved the issue to the top of the agenda and forced the concerned parties to discuss it. And since then, Taiwan has slowly been opening up more and more industries to Chinese investors. The telecom industry has remained out of bounds, however, as the government continues to view it as too sensitive from a national security standpoint.
The change of regulations in early April this year to allow increased investments by Chinese banks into Taiwan sparked renewed hopes that perhaps there would be some progress with regard to the telecom sector as well. But China Mobile clearly didn’t share those hopes.
The Chinese telecom operator has been renewing its agreement with Far EasTone every year since it was first struck, but this time it decided not to do so. The obvious reason is that so much time has passed without any signs that the Taiwan government is about to ease the ownership restrictions on the telecom industry that it has given up hope that anything will happen in the foreseeable future.
But it is also unlikely that the investment would have been able to go ahead per the original agreement even if it did get regulatory approval, simply because Far EasTone’s share price has doubled in the past four years. China Mobile agreed to pay NT$40 per share, which represented a 15.4% premium to the market price at the time. But with the stock now at about NT$70, Far EasTone would likely have wanted to renegotiate the price.
In its statement to the Hong Kong stock exchange, China Mobile said that the subscription agreement has been terminated as some of the conditions have not been satisfied.
However, it noted that it has developed a close working relationship with Far EasTone and said it believes it will be beneficial to continue to pursue and explore broad-based cooperation with the Taiwanese company in new areas, including products and content. As a result, the two companies entered into a business cooperation framework agreement on April 18 to jointly explore various business opportunities in the future.
It added that the two companies “may reconsider the possibility of equity cooperation…upon Taiwan laws and regulations opening up the class 1 telecom services sector for investments by mainland China-funded enterprises.