Taiwan’s stock exchange has scrapped a rule that blocks local companies from buying loss-making foreign entities, giving a boost to the country’s M&A bankers.
The Taiwan Stock Exchange made the change on Monday. Taiwan’s listed companies will now be able to buy unprofitable foreign rivals listed on the main board of 14 separate stock exchanges, the exchange said in a statement.
Those foreign stock exchanges given approval include NYSE Euronext, Nasdaq, Deutsche Borse, London, Toronto, Australia, Tokyo, Osaka, Singapore, Malaysia, Hong Kong, Thailand, Johannesburg and Korea.
But the new rules go much further than that. The exchange said that even if a loss-making overseas company is listed on a stock exchange other than the ones it has approved, it can still be bought by a Taiwanese company as long as it adds to net asset value.
Since few companies with a negative net asset value will look like attractive propositions to potential bidders, this caveat means that Taiwanese companies are now free to buy almost any foreign company, loss-making or not, that they want.
There is a third way even if the above caveats are not met. A deal will also be approved if it is assessed by the Ministry of Economic Affairs as being able to create business synergies and improve efficiency, the exchange said.
Hungry for more
Taiwanese companies have long shown an appetite for overseas acquisitions, especially in technology and banking. This has only become stronger as they have found themselves in turn becoming acquisition targets for foreign companies. To reduce the likelihood of being acquired, they are actively buying assets in order to become bigger targets that are more difficult for other companies to swallow.
Taiwanese banks and financial institutions, meanwhile, are hunting M&A targets in Southeast Asia in order to diversify from the highly-competitive local market.
As many Taiwanese banks are looking for M&A opportunities in emerging markets such as Cambodia and Myanmar, the new M&A rule will provide more flexibility for them to buy local companies that are loss-making for the time being, but that possess huge potential for future growth.
The new rule could ease concerns for Hon Hai, which is in the process of acquiring loss-making Japanese electronics maker Sharp in a $3.5 billion deal, the biggest outbound acquisition ever by a Taiwanese company.
Sharp reported a net loss of ¥256 billion ($2.4 billion) for the financial year ended March 2016, an increase of 15% from the ¥222 billion net loss in the previous financial year. The company has been loss-making in four of the last five financial years.