MediaTek's US$4 billion purchase of MStar Semiconductor was approved by the mainland's antitrust regulator on condition the Taiwanese companies keep competing with each other in the television-chip business for three years.
MStar's Taiwan-listed shares jumped by the 7 per cent limit yesterday while MediaTek's fell 0.4 per cent. Taiwan's benchmark Taiex index fell 0.2 per cent.
MediaTek and MStar said on Tuesday the transaction would close by February 1, 2014, after the Ministry of Commerce signed off on a plan to implement conditions the regulator imposed. Approval was expected within three months, the Hsinchu, Taiwan-based companies said in separate statements.
Beijing's anti-monopoly authority said MStar's liquid-crystal display television-chip business must exist as a separate entity while the handset-chip businesses may merge, according to a statement posted by China's Ministry of Commerce on its website on Tuesday. The companies can ask the ministry to lift its conditions after three years, according to the statement.
"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, referring to the mainland ministry. Break-up fees or share-price concerns might have led the companies to stay the course, Lee said.
The proposed acquisition gives MediaTek about 61 per cent of the global market and 80 per cent of the mainland's market for LCD TV main chips, enough to exert an anti-competitive effect in the mainland, according to the ministry.
MediaTek announced the deal in June 2012, saying it planned first to buy 48 per cent of MStar, followed by a full takeover. Beijing on Tuesday 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. "MStar Semiconductor (Taiwan) shall continue to compete independently with MediaTek."
MediaTek, which initially said the transaction would close by January, extended a closing deadline three times as the companies awaited approval by Beijing'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," said Michael Liu, an analyst at KGI Securities.