ASE-SPIL Merger: Taiwan Fair Trade Commission Suspends Review

| About: Siliconware Precision (SPIL)

Summary

TFTC suspends review of the ASE-SPIL merger.

This is a blow to ASE, and the company will now have to use other means to acquire the remaining shares of SPIL.

There was concentrated buying in SPIL shares Thursday at a price between $7.75 and $7.95 per ADS on heavy volume.

My speculation is this could be ASE starting to buy more SPIL stock in the open market.

However, due to an uncertain timeframe and the tail risk that ASE gives up its efforts to acquire SPIL, I decided to take profits today.

In a new development in the Advanced Semiconductor Engineering (NYSE:ASX) - Siliconware Precision Industries (NASDAQ:SPIL) merger soap opera, ASE reported yesterday in a SEC filing that the Taiwan Fair Trade Commission "has decided to suspend its review of the proposed combination between ASE and Siliconware Precision Industries.

This is a major setback for ASE and the company said they "deeply regret" and are "extremely baffled by the TFTC's decision, which is completely without legal basis and violates the TFTC's own administrative precedents".

Here is the full wording of ASE's SEC filing text:

Response to the TFTC's Decision to Suspend Review of ASE-SPIL Combination

Taipei, Taiwan, R.O.C., March 23, 2016 - Advanced Semiconductor Engineering, Inc. (TAIEX: 2311, NYSE: ASX) ("ASE" or "we" ) noted today that the Taiwan Fair Trade Commission ("TFTC") has decided to suspend its review of the proposed combination between ASE and Siliconware Precision Industries Co., Ltd. ("SPIL"). We deeply regret and are extremely baffled by the TFTC's decision, which is completely without legal basis and violates the TFTC's own administrative precedents.

In order to respond to the intense and constant changes in the global semiconductor industry, as well as to ensure the sustained development of the Taiwanese semiconductor packaging and testing supply chain, we will continue with our plan to acquire 100% equity interest in SPIL through all legally permissible means and avenues.

My take on ASE's reaction the TFTC decision

I believe this is a bit of a harsh reaction from ASE and this tone can't bode will for its future relations with the regulators. This could hamper potential future attempts of ASE to get approval for a merger with SPIL.

ASE will now have to try other means to acquire the remaining stake. The company confirmed that it remains committed to continue with its plan to "acquire 100% equity interest in SPIL through all legally permissible means and avenues".

So what's next?

In my opinion, ASE could try to acquire the rest of SPIL stock in the open market and possibly try another tender offer later on.

There is also a potential outcome in which Foxconn (OTC:FXCOF) comesup with a better offer. However, this is very unlikely andunpredictable at this stage as I considered Foxconn to be a "whiteknight" from the very start, used to fend off ASX hostile takoverattempt. Moreover, Foxconn recently attempted to lower its offer for Sharp, so its appetite for raising offer prices seems to be low at themoment.

Interestingly, today at around 12:05, there seems to have been heavy buying of SPIL stock when 60 thousand shares traded in under a minute at a price between $7.75 and $7.95.

Click to enlarge

It is possible that ASE started buying SPIL stock in the open market, although this is just my speculation.

How I decided to trade this situation

I decided to sell all SPIL stock at $8.13 per share today for a profit of ~12% in about a month, as purchased in the Trade #33 announced to my subscribers, and also later published to all SA readers who could have still made a ~9% in exactly one month.

Why did I sell today?

Although there may be some more upside (my gut feeling would be up to $9 per ADS), the timing of any more upside is uncertain. It may take months or even years for ASX to manage to buy all of SPIL in the open market and ASX may only be willing to buy below a certain threshold. For now (today), this threshold seems to be at around $8 per ADS.

Moreover, if ASX sees it can't buy the rest of SPIL at a decent price, ASX may decide to dump its current 25% stake. Such a large volume of shares would certainly drive the price down a lot. Although this action by ASX is very unlikely now, there is always a risk.

Therefore, given the opportunity cost (time we would have to spend holding SPIL) and this long-tail risk of ASX potentially selling its stake, I prefer to close the position and wait for the capital to be deployed in opportunities with a more predictable timing and upside/downside risk.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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