Taiwan Is Reviewing Deal With McDonnell : * Aerospace: The Asian nation may cut its proposed stake in the firm’s commercial jet business to 25% from 40%. McDonnell Douglas says other investors can be found.
Taiwan Aerospace may slash its proposed acquisition of McDonnell Douglas’ commercial aircraft business to a 25% stake from its original plan to buy 40% for $2 billion, the company and the Taiwan government said Friday.
The deal has generated opposition in Taiwan, where some politicians consider it a poor investment. U.S. analysts have grown increasing skeptical the past week that it could go forward without significant revision.
In trading Friday, McDonnell shares dropped $2.25 to $63.50 on the New York Stock Exchange after falling $1.25 Thursday, when it appeared that the deal faced significant restructuring.
McDonnell officials--confident that other investors can be found--said they are talking with investors in Japan, South Korea, Singapore and Indonesia. When the deal was unveiled last November, McDonnell said it wanted to sell 49% of its commercial aircraft business--40% to government-backed Taiwan Aerospace and 9% to others.
John Wolf, executive vice president of McDonnell’s commercial aircraft business, testified before Congress on Wednesday that the firm’s survival in the aircraft industry depends on the Taiwan deal’s success in helping McDonnell develop new aircraft to compete in the international market.
A reduction in the Taiwan investment to a 25% ownership position would cut the cash infusion for McDonnell to $1.25 billion, assuming that the appraised value of McDonnell’s Long Beach-based commercial aircraft business does not change.
But the effect would be greater than just a reduction in funds upfront; Taiwan’s expected multibillion-dollar investment in McDonnell’s new MD-12 jetliner program would shrink accordingly.
Jennifer Pokrzywinski, a securities analyst at Morgan Stanley, said a shrinkage in Taiwan’s investment would make it harder for McDonnell to find other partners.
The Taiwan investors “are not sending a good message. They have looked more closely and now they are scaling back,” she said. Taiwan officials are conducting a lengthy, two-part review of the deal, resulting in delays beyond the originally anticipated closing date of Jan. 31.
The size of the Taiwan investment will depend on the outcome of the review, Taiwan Aerospace Vice President George Liu said in an interview. Taiwanese Economics Ministry officials confirmed that statement Friday, according to the semiofficial Central News Agency.
Liu said the deal is not unraveling, but acknowledged that if the review is negative “it will be very hard to raise funding” for the project.
Singapore Aerospace is widely considered a likely partner for McDonnell, according to U.S. sources. It operates a commercial aircraft maintenance and modification facility in Mobile, Ala., one of nine sites McDonnell is considering for a new production plant.
Reuters contributed to this report.
