Taiwan Gains Foothold in U.S. Computer Field With Purchase of Wyse : Technology: The $262-million deal is Taiwan’s largest in a growing string of U.S. acquisitions.
A Taiwanese government-business investment group said Monday it has agreed to buy personal computer supplier Wyse Technology in the latest and most dramatic indication of that island nation’s growing acquisitions in the United States.
The deal, valued by Wyse at more than $262 million, will represent Taiwan’s largest purchase of a U.S. company and its first acquisition of a publicly traded American firm.
The agreement calls for Channel International Corp. to pay $10 per share for Wyse, an 8-year-old company best known for its personal computer screens. The deal with Channel, an investment group created specifically to acquire Wyse, had been expected for more than a month.
Although San Jose-based Wyse, whose most recent annual sales were $452 million, has run into considerable troubles and a fair share of red ink over the last year, the company offers its Taiwanese buyers a much sought after brand-name position in the U.S. personal computer market, including a nearly 50% share of the U.S. market for PC terminal screens.
“This is a tremendous business opportunity for us,” said Nelson Chang, Channel’s chairman. “Wyse has a very well-known name and a solid distribution channel for its products. It should give us a strong entry into the U.S. market.”
The purchase, subject to approval by the Taiwanese government as well as potential review by the U.S. government, is expected to be completed within the next several months. The deal is expected to provide Wyse with a much needed capital infusion to help it overcome its problems, which stem largely from its late entry into the PC clone business.
The deal is perhaps the best illustration to date of the accelerating push by the Republic of China on Taiwan to acquire what it considers to be strategically important U.S. businesses with its growing foreign currency reserves of $75 billion, the second largest in the world.
Although their investments have spanned the spectrum from textile plants to savings and loans, the Taiwanese say they are most interested in buying stakes in U.S. high technology companies and retail and wholesale distribution operations.
The overall goal, Taiwan trade representatives say, is to modernize manufacturing on the island to produce goods that will command higher prices worldwide and to better penetrate the U.S. consumer market, the world’s most prosperous.
“Taiwanese companies want to be aware of the most advanced technology and learn marketing so we can speed up manufacturing advances at home,” explained Eric Hwang, a marketing specialist with the Institute for Information Industry, a Taiwanese business- and government-supported research institute with offices in the Silicon Valley and Washington.
“And we need to learn how to sell in the United States so we can get closer to the customers of our products,” Hwang added.
Hwang said one of the best examples of his country’s investment strategy is the $20-million purchase earlier this year of Pactel Co., a small telephone and electronics retail chain in the San Francisco area.
The buyer, Great Electronics, makes facsimile machines, telephones, personal computers and a variety of other electronic gear sold in Pactel outlets. Great Electronics had been looking for a way to bring its products to the attention of the U.S. market.
“So they bought the channel to sell their existing products and for any other products they want to sell in this country,” Hwang explained.
The Wyse purchase represents a similar opportunity. Wyse is a recognized brand name, both in PC terminals and IBM-compatible personal computers, and distributes its products through such established retail chains as Businessland. Channel officials said Monday that they intend to maintain Wyse’s headquarters, marketing and related operations in San Jose, and they do not plan any changes in the existing product line.
The members of Channel International are China Trust Group, a privately held entity whose principal operations include China Trust Corp. and Taiwan Cement; the Development Fund, a Taiwanese government investment arm; Mitac Group, a personal computer maker, and USI Far East Corp. The Development Fund’s stake in Channel will be 20%.
The Channel-Wyse deal alone exceeds the total that Taiwanese companies have invested in the United States in recent years. According to market researchers, Taiwanese companies, with the blessing of their government, invested nearly $250 million in U.S. businesses from 1986 through 1988, either acquiring them outright or buying minority stakes.
According to research analysts, cumulative direct Taiwanese investment in the U.S. companies (with an ownership level officially defined as a minimum of 10% of a target company’s voting shares) was at least $330 million as of the end of last year, the last available date for which figures are available. In addition, the Treasury Department reports that Taiwanese citizens and corporations hold another $27.1 billion worth of all types of U.S. securities.
In all, analysts and trade representatives estimate, total Taiwanese investment in the United States exceeds $30 billion, including real estate holdings.
Although this total pales in comparison to the holdings of the British and Japanese--the two largest foreign investors in the United States--analysts say the Taiwanese are among the fastest-growing investors in this country and are likely to accelerate their buying spree, particularly because the Taiwanese have recently relaxed their foreign investment rules.
“Taiwan is becoming a real player in our economic life,” said Linda Spencer, a policy analyst with TRW Inc. in Reston, Va., and author of “American Assets,” a study of foreign investment in the United States. “It looks like they’ve made a real commitment to this country. And as their economy strengthens, they will have more money to invest here.”
However, Daniel Heiler, an analyst at the San Jose market research firm of Dataquest, said the rising Taiwanese investment rates could set off a backlash among American industry leaders, as have continuing investment moves by the Japanese.
Heiler said the rising cost of manufacturing on the island is forcing the Taiwanese to open factories in other Asian countries with lower labor costs and to acquire technology that will reduce production costs and speed the transportation of goods to consumer markets. In addition, he said, Taiwanese manufacturers would like to circumvent existing trade barriers to the U.S. market, particularly those on textile products, and to avoid potential new restrictions on other products.
Further, Heiler said, Taiwanese companies are looking to develop market strategies that will allow them to offer brand-name products that emphasize quality rather than price, as has been the case.
Analysts said the Wyse deal, although in the prized high-technology sector, stands out for two reasons: its size and the fact that the investors purchased the entire company rather than a minority share.
Typically, analysts said, Taiwanese investors have preferred to sprinkle their money around in a variety of companies in the hopes of gaining the most information about a variety of U.S. businesses.
But the more familiar the Taiwanese have become with the American economy, the more they have been willing to invest.
For example, Acer, a Taiwanese manufacturer of low-cost personal computers, spent just $4.4 million for Counterpoint Computers, a small start-up it purchased in 1987. But more recent deals, such as Continental Engineering’s acquisition of American Bridge, a former USX Corp. subsidiary in Pittsburgh, for as much as $100 million, have demonstrated Taiwan’s increasing interest in U.S. businesses.
At the same time, Taiwanese trade representatives say, their government has been trying to discourage their citizens and corporations from buying U.S. real estate, traditionally one of the most attractive American investments for foreigners.
“When we invest, we want to learn something,” said Eric Chiang, a spokesman for the Taiwanese government’s Coordination Council for North American Affairs, the equivalent of a general consulate. “Real estate just involves capital; we want to learn manufacturing and marketing techniques from the United States. And the way to do that is to get involved in their businesses.”
TAIWAN’S GROWING INVESTMENTS
A sampling of U.S. firms wholly acquired by Taiwanese investors
Purchase price U.S. company (in millions) Wyse Technology (computers) more than $262 (pending) American Bridge (construction) $70-$100 Eight Texas S&Ls; $37.5 National Bank of Detroit $21.2 Pactel Co. (chain of telephone retail stores) $20 Counterpoint Computers $4.4 Princeton Publishing Labs not available Regitar Power Tools not available Mouse Technology not available
