China Says Chipmakers Must Compete After $4 Billion Deal

MediaTek Inc. (2454)’s $4 billion purchase of MStar (3697) Semiconductor Inc. was approved by China’s antitrust regulator on condition the Taiwanese companies keep competing with each other in the television-chip business for three years.

MStar shares rose by the 7 percent limit, the biggest gain since September 2011, to close at NT$263.50 in Taipei. MediaTek fell 0.4 percent to NT$366, while Taiwan’s benchmark Taiex index rose 0.1 percent.

While it approved the deal, China’s anti-monopoly authority said MStar’s liquid-crystal display television-chip business must exist as a separate entity to ensure fair competition, according to a statement posted yesterday by China’s Ministry of Commerce, or Mofcom, on its website. MediaTek announced the deal last year and extended the closing deadline three times before Mofcom gave its approval.

The handset-chip businesses were allowed to merge and the companies can ask the ministry to lift its conditions after three years, according to the statement. The transaction is valued at 24.6 billion yuan ($4 billion), the ministry said.

MediaTek and MStar yesterday said the transaction would close by Feb. 1 after Mofcom signs off on a plan to implement conditions the regulator imposed. Approval is expected within three months from yesterday, the Hsinchu, Taiwan-based companies said in an English statement to the stock exchange.

Stringent Conditions

“I can’t imagine anyone at MediaTek being all that pleased with the Mofcom conditions as they do appear stringent,” said Rocky Lee, the Beijing-based Asia managing partner at law firm Cadwalader, Wickersham & Taft LLP. Break-up fees or share-price concerns may have led the companies to stay the course, Lee said.

The proposed acquisition gives MediaTek about 61 percent of the global market and 80 percent of China’s market for LCD TV main chips, enough to suppress competition, according to Mofcom.

MediaTek announced the deal in June 2012, saying it planned first to buy 48 percent of MStar, followed by a full takeover. China yesterday also limited MediaTek’s shareholder rights in MStar’s independent TV main-chip business, MStar Taiwan.

“After the merger transaction is completed, MStar will cease to exist and be delisted, upon which MStar’s handset and other wireless communication business operations shall be merged into MediaTek,” MediaTek said yesterday. “MStar Semiconductor (Taiwan) shall continue to compete independently with MediaTek.”

The parties may apply for a full merger of TV main-chip operations after three years, MediaTek said.

Delayed Deadlines

MediaTek, which initially said the transaction would close by January, had delayed a closing deadline three times as the companies awaited approval by China’s antitrust regulator. The deal previously cleared regulators in South Korea and Taiwan.

“These conditions may remove some of the potential synergies as both companies will have to retain their respective R&D, sales and marketing teams,” Michael Liu, an analyst at KGI Securities Co. in Taipei, said in an e-mail. “However, independent business units could actually be better for their TV business as each TV team would fight for market share from other competitors.”

To contact the reporter on this story: Debra Mao in Hong Kong at dmao5@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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