Powertech Abandons Planned Stake Sale to Unigroup

(Beijing) — A Taiwan high-tech chip maker dropped its plans to sell a major stake to Tsinghua Unigroup after the deal met with political resistance from the island’s new mainland-wary administration, which took office after the deal was first announced.

Powertech Technology Inc., which specializes in chip tests and assembly work, said on Friday it was calling off the deal after failing to meet a one-year deadline. Shareholders had originally approved the agreement on Jan. 15, 2016, which would have seen Unigroup buy a quarter of Powertech for about $600 million.

A Unigroup spokesman had no comment on the matter.

The collapse of the deal marks the latest setback in Taiwan for Unigroup, which had also previously agreed to buy stakes in two other local chip makers, ChipMOS Technologies Inc. and Siliconware Precision Industries Co. Those two deals were also called off, in 2016.

Unigroup had planned to invest a combined $2.6 billion in the three companies as part of its ambition to assemble a world-class Chinese chip maker. Beijing has made billions of dollars in funds available for such investments, hoping to develop a high-tech industry making chips that power most of the world’s electronic gadgets, appliances and cars.

But Taiwan’s new leader, Tsai Ing-wen, who took office in May 2016, threw cold water on Unigroup’s plans when she called investments from the mainland a “huge threat” to the island’s important semiconductor industry.

“It goes without saying that the Taiwanese government is highly distrustful of China's investments in the semiconductor industry, and wants to prevent the mainland from mastering core technology through acquisitions,” said Sheng Linghai, an analyst at Gartner.

“This is also a sensitive industry for China, which, despite having some of the most valuable tech giants in the world, still lacks the capacity to provide its own chips, making the nation overly reliant on suppliers, mostly Taiwanese ones.”

Unigroup, sister company Unisplendour and other Chinese buyers have also met with resistance from Western governments over similar buying. Such concerns killed an earlier Unigroup bid for leading U.S. memory chip maker Micron Technology Inc., and also a planned investment in hard-drive maker Western Digital Corp. by Unigroup’s sister company, Unisplendour.

In the latest similar setback, the administration of U.S. President Barack Obama blocked a Chinese bid for German chip maker Aixtron SE late last year, citing national security risks. Before that, Germany itself had also reversed course and ordered a security review for the deal after initially indicating no such step was necessary.

Contact reporter Yang Ge (geyang@caixin.com)