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Asia Pacific M&A Bulletin

Seeking opportunity in crisis

Year-end 2008
M&A advisor of choice
Number 1 Advisor by Volume in Asia Pacific ex. Japan for 2008 by MergerMarket
Number 2 Advisor by Volume in Asia Pacific ex. Japan for 2008 by Thomson Reuters

A selection of recent M&A transactions in Asia Pacific advised by


Korea Express Co., Ltd Meiji Dairies Corp CVC Asia Pacific Ltd SSI Ltd
Advised seller on sale of Merged with Acquired 65% interest in Merged with
60% interest in Meiji Seika Kaisha Stella Hospitality Group. PVP Venture Pvt Ltd for
Korea Express Co Ltd to via a share swap. Transaction value of S$717 million
an investor group for Transaction value of US$1,223 million via a share swap
US$4,334 million US$2,543 million

Financial Advisor: Financial Advisor: Financial Advisor: Financial Advisor:

Samil PricewaterhouseCoopers PwC Advisory Co Ltd pwc pwc
Corporate Finance Corporate Finance Corporate Finance Corporate Finance
2008 Korea 2008 Japan 2008 Australia 2008 India

Nippe Toyama Corp Toppan Printing Co., Ltd Guan Sheng Yuan Group Novo Group Ltd
Sale of 66.27% to Acquired Sale of 45% equity stake Listing on the
Komatsu Ltd for SNP Corporation Ltd to Citic Capital for mainboard of SGX-ST
US$555 million for S$220million RMB510 million via a reverse takeover.
through Voluntary Transaction value of
Conditional Cash Offer S$140 million

Financial Advisor: Financial Advisor: Financial Advisor: Financial Advisor:
PwC Advisory Co Ltd pwc pwc pwc
Corporate Finance Corporate Finance Corporate Finance Corporate Finance
2008 Japan 2008 Singapore 2008 China 2008 Singapore

Underwriting Agencies Hunan Laobaixing IVF Australia (IVFA) Xinjiang Tunhe Industry
of Australia (UAA) Pharmacy Chain Advised vendor on & Trade Group Limited
Advised UAA on sale Sale of 48% to sale of IVFA to Sale of operating assets
of QBE Limited EQT Opportunity Fund Quadrant Private Equity to Blue Ridge China via
bankruptcy restructuring

Financial Advisor: Financial Advisor: Financial Advisor: Financial Advisor:
pwc pwc pwc pwc
Corporate Finance Corporate Finance Corporate Finance Corporate Finance
2008 Australia 2008 China 2008 Australia 2008 China

Year-end 2008 Asia Pacific M&A Bulletin

2 PricewaterhouseCoopers
Successful deals
are Made, not Born
We view M&A as a coordinated process, not a series of
separate steps. Acting as deal managers and due diligence
advisors, we help our clients find the right deals, get them
done faster, with less disruption and at a more attractive price.

PricewaterhouseCoopers Transactions
We help companies make acquisitions, divestitures Identify
and strategic alliances, and to access the global • M&A Strategy
capital markets. In each case we have the same • Deal Origination
overriding objective – Maximising Returns and • Market Entry
Minimising Risks, for our clients.
Harvest • Target Search
• Sell-side Deal
Using cross-functional teams, we bring together all Advisory
• Vendor Assistance
the relevant expertise from across the Asia Pacific • Capital Markets Evaluate
region and globally to provide services across the Advisory • Buy-side Deal
whole deal continuum. Delivering a fully connected Advisory
solution to our corporate and financial investor • Valuation
clients, including tapping into our network’s vast • M&A Tax Structuring
Maximise • Project Finance
industry sector knowledge. • Post Deal Advisory
With more than 6,200 dedicated specialists in our
global Transactions practice, our clients include the
• Performance
• Financial and Tax
world’s leading companies and private equity houses. • Tax Optimisation
• Governance, Risk Due Diligence
In Asia Pacific, we are the leading Transactions • Commercial Due Dilligence
and Controls
practice, with 2,000 specialists including 150 • Accounting • IT Due Dilligence
dedicated partners. Advisory • Operational Due Dilligence
• HR Due Dilligence
• Environment Due

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 1

Seeking opportunity
in crisis
Happy New Year! Most of us have never looked forward to the end of a year as
much as we did the last one. For M&A, 2008 had, for all intents and purposes,
ended on 15 September, the day Lehman Brothers filed for bankruptcy and
Merrill Lynch was taken over by Bank of America. Confidence plunged and fear
of systemic meltdown gripped the business world. The credit crunch, which up
until then had ravaged mainly the US and parts of Europe, intensified overnight
into a global credit freeze. Stock markets across the world plunged. The global
banking system and financial markets went into full cardiac arrest. The sub-
Chao Choon Ong prime crisis, which until then had been confined mainly to the financial sector,
Transactions Leader spilled into the real economy.
Asia Pacific
Governments around the world swung into action immediately. The US pushed
through a US$700 billion Troubled Asset Relief Programme in early October.
This was originally slated for the purchase of toxic mortgage-related assets
but was re-designated in November for recapitalisation of financial institutions.
The Federal Reserve also launched two new programmes in November to
buy up to US$800 billion in mortgage and consumer loan-backed securities.
Over in Europe, the United Kingdom threw a £500 billion lifeline to its banks
for recapitalisation, bond guarantee and liquidity; Germany and France
announced Euro 500 billion and Euro 360 billion rescue packages respectively.

Credit, the lifeline of both the financial market and the economy, had to be
restarted quickly. As a measure of the fear that existed in the credit market,
TED Spread shot up from 1.3537% the Friday before the Lehman collapse,
to 4.636% on 10 October, its highest level since measurement started 25 years
ago. In desperate attempts to thaw the credit freeze and get banks to lend to
customers and to each other, over a trillion dollars was pumped into money
markets to increase liquidity. Interest rates were also cut aggressively in quick
succession by central banks around the world, with the Fed Fund rate lowered
to 0 – 0.25% on 16 December. In addition, governments guaranteed not only
inter-bank loans to encourage lending, but also customer deposits to prevent
panic withdrawals and a run on banks. As much as US$33 billion was withdrawn
by customers in the US in the ten days following Lehman’s collapse.

There are early signs that the credit market is improving as a result of these
drastic measures. The three-month LIBOR which ended 2008 at 1.43% has
continued to spiral downwards in January 2009 to 1.18%. This is off the high
of 4.8% on 10 October, and even lower than the 2.8% just before the Lehman
collapse. TED Spread ended 2008 at 1.34% and further dropped to 0.958% in
January. Nevertheless, we are not out of the woods yet. Even as we start a new
year, credit remains tight. Banks burnt by the crisis are licking their wounds and
still downsizing their loan books to minimise capital requirements. Even Asian
banks that have been largely unscathed by the sub-prime crisis are credit-shy
as they hunker down in anticipation of tough times ahead when the crisis
develops into a full blown global recession.

The difficulty in securing credit and the volatile stock markets, coupled with the
loss of business confidence and uncertainty with regards to the extent and depth
of the recession, had knocked the wind out of M&A. The fourth quarter, which
traditionally sees a hive of M&A action, was deafeningly quiet this time. M&A
activity, already slowing down in first half of 2008 compared to both halves of
2007, dropped 21% in deal value in the third quarter, and a further 15% in the
last quarter. Comparing the two fourth quarters in 2007 and 2008, the fall was a

Year-end 2008 Asia Pacific M&A Bulletin

2 PricewaterhouseCoopers
whopping 42%. Given that many of the deals announced in The Economist Intelligence Unit forecast that the global
the fourth quarter were already in advanced stages of economy will contract by 0.9% in 2009, and world trade is
negotiation by the time of the Lehman bankruptcy, we expected to contract by 2% as a result of collapsing import
expect that deal announcement statistics will continue to demand from the US, Europe and Japan.
be depressed in the first half of 2009.

Asia Pacific Quarterly Deal Value & Volume – 2006 to 2008 Asia Pacific Deal Value & Volume by Country – 2006 to 2008
Deal values Deal volume
Deal value (US$’million) No. of deals
200,000 4,000
200,000 3,500
3,500 180,000
160,000 3,000
Deal value (US$’million)

140,000 140,000 2,500
No. of deals

120,000 120,000
100,000 100,000 2,000
80,000 80,000 1,500
1,000 60,000 1,000
500 40,000
20,000 500
- - - -
06 006 006 006 007 007 007 007 008 008 008 008
20 2 2 2 2 2 2 2 2 2 2 2 pan ralia hina ong ore dia rea ysia esia wan ines and and am
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Ja st C g K gap In Ko ala on Tai ipp al ail ietn
Au n n M Ind il Ze Th V
Ho Si Ph ew
Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
of 31 December 2008 2008 Deal value 2007 Deal value 2006 Deal value
2008 Deal volume 2007 Deal volume 2006 Deal volume

Not surprisingly, year-on-year M&A value and volume Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
for Asia Pacific was down 21% and 4% respectively. of 31 December 2008

The steepest falls have come from Australia and Japan,

the two most developed countries in the region. China Asia Pacific, while not decoupled from the US-European
reported growth in both deal value and volume, which economies, has been somewhat insulated and may just
may be a result of the longer deal execution process and be the silver lining amidst the storm clouds. It was relatively
its predominantly growth capital deals. Anecdotally, unscathed by the direct impact of the sub-prime crisis
we noted that deal activity in China slowed down as Asian financial markets and institutions are less
substantially in the fourth quarter. sophisticated. However, it could not escape the global
liquidity crunch and credit freeze arising from US and
European banks’ capital deficiency crisis; and Asia’s
Asia Pacific Deal Value & Volume 2004 to 2008 export-led economies are bracing for the full impact of the
Ranking Value inc. Net Debt of Target ($Mil) Deal volume US-Europe recession to hit in 2009. Asia’s exports to US
800,000 16,000 and Europe account for 31% of its US$33 trillion exports.
700,000 14,000
600,000 12,000 The IMF expects Asia Pacific ex Japan to grow by 5.5%
500,000 10,000 in 2009, thanks to the projected 6.7% growth for China.
No. of deals
US$ million

400,000 8,000 The Chinese government has projected a more optimistic

300,000 6,000 8% growth (versus 9% in 2008), although Premier
200,000 4,000 Wen Jiabao recently admitted that achieving it would be
100,000 2,000 a tall order. Premier Wen also disclosed that China is
2004 2005 2006 2007 2008
- considering additional measures beyond the RMB 4 trillion
(US$580 billion) stimulus package that it announced earlier.
Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
With US$1.8 trillion in reserves, the Chinese government
of 31 December 2008 has the financial muscle to weather this crisis. Premier Wen
is upbeat that there are already first signs of a rebound.
2009 started with the economy in intensive care. The general China’s official manufacturing index, the purchasing
prognosis is that this will be a long-drawn recession, and managers’ index, rose steadily from a record low of 38.8
recovery will be slow. The US economy has been in in November to 41.2 in December and 45.3 in January
recession since December 2007 and it may take at least 2009. State-owned Chinese banks also heeded the
another year before it starts to recover. President Obama government’s call. Loan volume has risen, hitting a record
has given himself three years to turn the economy around. Rmb1.2 trillion (US$175 billion) in January. It would take a

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 3
few more months to tell whether the Chinese economy has valuation gap has emerged as sellers are holding out for
indeed bottomed out, or if this is a false dawn. While an better valuation when the stock and financial markets
early China recovery will have positive side effects for Asia, stabilise. The same conditions are causing buyers to be
it will not replace the US and single-handedly revive the extra prudent. This gap will only begin to narrow when
global economy. The US and Europe account for 60% of both sellers and buyers perceive that the economy has hit
the world’s US$30 trillion personal consumption, whereas rock bottom, which could be anywhere between the
China only accounts for 3.3%. Nevertheless, an early China second and fourth quarter of this year. What is certain is
recovery augurs well for Asia’s M&A landscape. that buyout transactions will be curtailed in 2009 as
normalisation of the financial system is expected only in
Corporate investors with a strong heart and a stronger 2010, and even then, the lending environment will certainly
war chest will find 2009 a unique window for strategic be far more conservative than pre-2008.
acquisitions. This is the time to use M&A to leapfrog
competitors, transform value chains, break into new Sovereign Wealth Funds (“SWFs”) have generally stayed
markets and secure competitive advantage for the next on the sidelines in the last quarter of 2008, apart from the
decade. Across all sectors of the economy, significant pain £5.5 billion injection into Barclays from Qatar Holding and
is still to come, especially for those that relied on short the ruler of Abu Dhabi. Faced with mounting paper losses
term credit from banks. Hard-pressed businesses may on their US$50 billion or so investments in the past two
have to sell assets and businesses to raise cash for years to shore up US and European banks, over and above
deleveraging. Stressed assets, distressed and motivated those from their other portfolio companies and trading
sellers, lower gearing and subdued stock markets will positions, SWFs are likely to remain cautious throughout
result in more attractive pricing - a boon to strategic the first half of 2009. Controlling some US$3 trillion of
investors. Strategic investors will also have an upper funds, and having a longer investment horizon, SWFs are
hand in competitive bidding, as there would be synergistic able to capitalise on the dearth of credit to exploit cash
value which only they can appreciate and unlock. More deal opportunities. Nationalistic sensitivity remains the
importantly, businesses which in more normal times are biggest stumbling block for SWFs’ cross-border
not available for sale may come into the market. One investments. As we have seen in recent years, while
needs to look no further than the financial sector for such SWFs may be welcomed as white knights during tough
examples. With the deluge of bad news everyday, it is easy economic times when their funds are needed by the host
for corporations to get caught up with day-to-day countries to save companies and jobs, sentiments and
operational and cost management issues, losing sight of politics can change very quickly once the economy
this strategic acquisition window. To avoid this trap, recovers. To mitigate this, we expect more SWFs to co-
besides gearing up for a long recession in their scenario invest with private equity or strategic investors, especially
planning, corporations should also revisit their strategy, so if sensitive industries or controlling stakes are involved.
and challenge themselves to better leverage on
This will be a year of opportunities, and also significant
acquisitions to make a quantum leap. There is currently no
risks in M&A.
shortage of private equity funds in the region. Corporations
should explore how they can tap on such money for • Controlling shareholders will exploit the depressed
growth, or co-invest with private equity to reduce their stock markets to take their companies private. A case in
acquisition outlay and associated financial risks. point is Hong Kong-listed PCCW Ltd.

While fund-raising by private equity is exceedingly difficult • Consolidation of the banking industry will continue as
in the current environment, many private equity funds banks deleverage and merge for strength. For Asian
are sitting on substantial uninvested funds. Globally, buyers, this will create acquisition opportunities in both
unused private equity funds at the end of 2008 stood at the Western banks’ Asia operations and their non-core
US$1 trillion, with almost half in buyout and another 20% global businesses. Nomura acquired Lehman’s
in real estate. Of the unused buyout funds, US$45 billion investment banking business in Asia in the aftermath of
are held by funds focusing on Asia and “Rest of the its collapse. AIG’s on-going sale of ILFC, one of the
World”. That is substantial firepower, and private equity largest aircraft leasing businesses in the world, is
sees buying opportunities as valuation nosedives and rumoured to be attracting interest from Asian and
alternate sources of capital dry up. However, a yawning Middle Eastern SWFs.

Year-end 2008 Asia Pacific M&A Bulletin

4 PricewaterhouseCoopers
• Lavish government stimulus spending will boost the but shorter execution timeline. The Bank of America
infrastructure industry. takeover of Merrill Lynch is a good example of what
could go wrong and how it could drag down the buyer.
• The oil and mining sectors will remain active as China The challenge for buyers will be to conduct incisive due
continues with M&A to secure resources at relatively low diligence in the timeframe permitted - to understand the
prices. Australia-listed Straits Resources has received financial position, cash flow and capital requirements of
interest from Chinese and other Asian buyers for its the business to be acquired, and the value that can be
47% Singapore-listed Asia Resources, even as it issued unlocked post-acquisition. To preserve value, distressed
AUD$80 million of convertible bonds to Standard deals will require swift and decisive action post-acquisition
Chartered Private Equity. to take control, restructure and integrate. For distressed
businesses, a substantial portion of their value to buyers
• The environment is clearly on the agenda with the call
may arise from post-acquisition restructuring and
for the Green New Deal, although the payback could be
synergistic integration. It is thus imperative that a high-
delayed by a few years as a result of the recession.
powered integration team be set up at the start of deal
• Other sectors that are badly hit, like retail, real estate, execution, and planning for post-acquisition activities
transportation and logistics, will see mergers of conducted concurrently and fed to the deal execution
necessity as troubled companies align with stronger team. Parts of the plan, including taking control, should be
ones for survival. put into action as soon as the deal is signed.

• Outbound M&A by Asia corporations will increase as As we enter the eye of this unprecedented financial storm
they capitalise on the crisis to acquire Western with dread and trepidation, we brace ourselves for the trail
companies for market access, technology, intellectual of economic destruction ahead. There is pervasive
property, brands and even international management uncertainty about the new world economic order that
know-how, as we saw in Lenova’s acquisition of IBM’s awaits us. It is too early to predict what new regulation we
personal computer business a few years ago. will see, how the financial sector will be restructured, and
what impact these will have on future economic growth and
We expect to see a surge in distressed deals in the second asset prices. What is certain is that the winners will be
half of 2009 as more short term debts become due in the those with the vision, extraordinary courage and discipline
coming months. These deals typically have higher risks, to seek out opportunities amidst the prevailing crisis.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 5
Comments from
our industry leaders

Financial Services
The outlook for financial services M&A in Asia is one of great caution. With the
number of large global banks collapsing or being rescued at unprecedented
levels in late 2008, 2009 is expected to be a period of uncertainty for financial
institutions in Asia. Senior management in the industry is grappling with issues
including managing asset quality, ensuring liquidity/capital soundness, and
implementing cost control measures. Although caution appears to be the main
policy, many institutions are also carefully watching the market so as not to
miss potential bargains or other opportunities arising from the turmoil.
Dominic Nixon
But even when opportunities become available, financial institutions are
Financial Services
navigating potential acquisitions very carefully. They are acutely aware of their
capital constraints, as well as the probable additional demands on capital as
more assets are expected to be written down. In addition, there does not appear
to be relaxation on the timetable for implementing new capital rules in Asia
(such as risk-based capital rules for insurers). Financial and other institutions
which fund their acquisitions via inter-bank funding are also finding their cost
of funds escalating significantly. Fraud and mismanagement, best represented
by the Madoff incident, further erode confidence when evaluating targets.

The lack of cash is causing many financial institutions to walk away from
potentially attractive deals. Many are also evaluating divestments as a way
to generate cash or save capital. In 2009, we expect to continue seeing
increased sales of non-core assets including properties, minority equity stakes,
and ancillary businesses. Restructuring of balance sheets via sale of non-
performing assets may also increase. We expect Asia to see a fair share of
such divestments, as non-Asian multinationals consolidate and focus on their
core European and American businesses. Interestingly, as some of these
institutions reduce their exposure to the region, others are increasing it.
The narrowing of the quality gap between Asian and non-Asian assets,
combined with Asia’s greater growth potential, is leading some previously more
conservative financial institutions to reassess their ambitions in the region.
We therefore expect some of these players to pursue M&A in Asia.

We also anticipate cash-rich Asian conglomerates seizing the opportunity to

increase their exposure to the financial services sector; they are expected to
partner financial institutions in joint ventures to look at M&A opportunities.

Finally, current market conditions are leading to uncertainty in the deal process
– non-completion risk is expected to be high in 2009. It also remains to be
seen if governments and regulators in emerging markets will continue to value
the transfer of technical expertise from Western financial institutions, which has
been a key justification for deals, given the perceived failures of these
organisations in their home markets. However, the pricing on certain assets,
some of which are now at levels not seen since the Asian financial crisis, may
prove too tempting for institutions to ignore. Many have expressed interest and
will look at targets but few will have the stomach and nerve to commit and
close deals.

Year-end 2008 Asia Pacific M&A Bulletin

6 PricewaterhouseCoopers
Comments from
our industry leaders (continued)

Oil & Gas

While 2008 may not have seen as much reported activity as other recent years
for M&A in the oil and gas sector, companies across Asia were still active in
seeking investment opportunities, and a number of Asian companies or assets
were targeted for acquisition.

Chinese state owned oil and gas companies demonstrated continued interest in
overseas investment in upstream assets, along with interest in midstream
operations. Notable announced transactions in 2008 were Sinopec’s US$2 billion
tender offer to acquire the shares of Canadian listed Tanganyika (assets in Syria),
Ken Su
Sinochem’s acquisition of Australia’s SOCO Yemen (assets in Yemen), and
Transactions Partner
PetroChina’s refining joint venture with Nippon Oil in Japan. Reported outbound
Oil & Gas
activity in Malaysia and Singapore included entities acquiring an interest in Cairn
Asia Pacific
India Limited.

Indonesia saw a number of significant domestic deals, including the multi-

billion dollar acquisition and disposal of Bumi Resources’ interests and Bakrie
& Brothers’ investment in Energi Mega Persada.

China reported inbound interest with Husky of Canada announcing plans

for a significant gas pipeline and storage system on the Chinese mainland.
Singapore and the Philippines also reported significant inward investment
with over US$1 billion being invested into Pearl Energy and PACC Offshore
Services of Singapore, and UK companies investing over US$2.7 billion in
Petron of the Philippines.

While oil and gas prices remain volatile, the long term outlook for most players
is bullish, and activity in 2009 is expected to be at, or higher than, that
observed in 2008. There should be continued interest from Asian companies in
assets outside of Asia, and, despite the economic conditions around the world,
there will still be interest from outside in exploration, production, and services
companies and/or assets based in Asia.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 7
Comments from
our industry leaders (continued)

Retail & Consumer

According to a recent PricewaterhouseCoopers survey, CEOs of global retail
and consumer companies currently consider penetrating existing markets as
their main growth driver – as might be expected in a year of financial upheaval.
M&A is seen by only 7% of retail CEOs, and 16% of consumer goods CEOs,
as a growth strategy in 2009. In the Asia Pacific region however, the outlook
is somewhat more optimistic.

Even though the survey revealed that acquisition is not the major strategy right
now, acquisitions remain an effective means of entering and penetrating the
Carrie Yu
high profile Chinese market. In the short term, the financial crisis has had a
Global Retail
significant impact on the financing ability of investors, and some of them may
& Consumer Leader
postpone their investment plans. Private equity investors are still looking for
good targets with growth potential and the ability to consolidate a particular
market segment. However, most PE funds are being conservative in concluding
deals, mainly due to the uncertainty in capital markets. There are some good
domestic acquisition targets available in the market, and the financial crisis
should bring down vendors’ valuation expectations. We still see a reasonable
amount of M&A activity in the consumer goods market, especially in the food
and beverage segment, e.g. the Coke/Huiyuan deal. Overall, we expect M&A
discussions and initiatives to continue, but the number of deals closed in the
next 12 months may decrease.

India’s retail and consumer M&A outlook remains interesting given its robust
GDP growth and recent declines in valuations. We feel there may be some
consolidation among retailers and increased transactions in the consumer
sector. Retail deals in 2009 are off to a promising start with recent transactions/
announcements from India-based groups such as Bennett Coleman and
Company Ltd., Fabindia, and Aditya Birla Group. On the consumer goods side,
India remains a market where penetration levels and per capita consumption in
most product categories are low. 2009 is likely to see moderate transaction
activity in this area. Hidden opportunities exist in the current economic climate
– valuations are more realistic, and, consequently, we expect to witness
increased inbound investment as foreign players look to enter India and
develop a presence.

Despite the challenging market environment, the M&A outlook in Australia for
2009 is moderately optimistic. Sector consolidation, a plethora of potential
acquisition targets (particularly distressed businesses), and attractive
valuations will be the main catalysts for activity in the year ahead. That said,
innovative funding structures will be necessary to overcome constrained
liquidity in the debt markets. In particular, many of the larger deals executed in
2009 are likely to be structured on a scrip-for-scrip basis. Two sizable deals set
to dominate the retail and consumer headlines in 2009 include Lion Nathan’s
AUD$7.5 billion bid for Coca-Cola Amatil, and Asahi’s AUD$1.2 billion bid for
the Australian Cadbury Schweppes business.

Year-end 2008 Asia Pacific M&A Bulletin

8 PricewaterhouseCoopers
Comments from
our industry leaders (continued)

Technology, InfoComm and Entertainment

The overall outlook for M&A in the Technology, InfoComm and Entertainment
(TICE) sector in the near term can best be described as difficult and uncertain,
with poor sentiment and a lack of debt funding likely to dominate the next six
months. Against that background it is however highly likely that we will see
deals that are opportunistic or tactical in nature. Smaller-sized deals – under
US$10 million – will still happen, particularly in the digital space, as the
downturn is likely to accelerate the shift of traditional media to digital
platforms, which offer greater targeting and interactivity. Collaboration is
Marcel Fenez replacing outright M&A as the preferred approach across the TICE eco-system.
Joint Global This enables companies to grow revenues by taking advantage of growth
Entertainment opportunities, exploiting new technologies, and offering new value to
& Media Leader customers, while at the same time sharing risk.

The tight credit markets will start biting telecommunication companies with
heavy debt loads, and we could see some merger activity among the second,
third, and fourth placed operators in any market. It goes without saying that
balance sheet strength is the spring-board for being able to take advantage of
the declining asset values that we are currently experiencing.

In the technology space, the large software companies, which are in large part
‘cashed up’, will hold back their acquisition activity for the better part of the
year as they wait for bargains. Expect them to move aggressively though when
the time is right as they likely already have their targets firmly in mind. Hardware
companies are most likely to hunker down in the current environment, focusing
on cost reduction while they ride out the storm. IT services and consulting
companies will struggle over the next year as finalising large contracts becomes
more difficult and competitive. This may drive consolidation – notably in India.

Equity market capitalisations of media companies have been very badly hit,
but it is unlikely that media assets will actually sell at ‘bargain-basement’
prices as most have intrinsic values far higher than what the risk adverse
investor is currently willing to pay. We are anticipating some ‘fire-sales’ of
distressed assets and it is worth checking the financing structures of deals
done in the past two years to identify potential targets. The deal activity in the
short term is likely to centre on smaller companies which provide the
opportunities for digital extension and for getting closer to the consumer –
particularly the digital natives.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 9
Leadership in
times of turmoil

“What keeps you awake at night?” It’s fairly easy to imagine that during the
economic boom of the past few years, the response of many Asian business
leaders would have involved a stare of disbelief and something along the lines
of “Well nothing actually, our top and bottom lines beat expectations in another
record breaking year!”

What a difference a year makes. The credit crunch, plunging financial and
commodity markets, slowing or negative economic growth, failed or postponed
deals, major frauds, failures of household names, rising unemployment, declining
property prices and the resulting erosion of consumer confidence. “How long
Keith Stephenson have you got… my Corporation faces a long and deeply distressing list of
Governance, Risk and challenges, all of which keep me awake” might be the more common response
Compliance Leader to the same question if asked today. The rapid deterioration of the major global
Asia Pacific economies over the 2H08 and into 2009 is having a profound impact on all Asian
corporations in one way or another.

In this atmosphere of uncertainty, the concensus is that economic conditions are

not likely to get substantially better anytime soon. Asian corporations therefore
face considerable challenges – and managing during these times of economic
turbulence will be a new experience for many whose careers have been built in
more benign times.

Corporations must consider the effects of the current economic conditions and
what they mean for the survival of their business, but they cannot stop there:
they also need to address several key questions – What do they need to do
differently? What do they need to do better?

Often, the secret of survival will be to focus on getting the simple things right
rather than embarking on wholesale radical change in every aspect of the
operations. Many practical steps can be taken to position the business to
emerge stronger once economic conditions improve.

In this context, PricewaterhouseCoopers has identified 10 key priorities for

senior executives to consider in developing their action plans.

1. Strengthen oversight
It’s easy to jump to conclusions when under pressure to protect profits during
a downturn. Many corporations will be tempted to freeze infrastructure
investments, mothball new growth projects and defer integrating the latest
acquisition. Advertising and recruiting investments are easily cut, as are loyalty
programmes for customers and staff.

However, some will take a different approach and invest where others are cutting
back. Cash-rich and far-sighted Asian corporations will take risks to benefit from
the situation.

Businesses which understand the environment in which they operate can

navigate a downturn in a way that makes the most of the opportunities arising;
those who do not will be inclined to take the path of least resistance, leading to
defensive and piecemeal actions. Most damaging of all, these businesses may
incur the risk of losing out to their competitors.

This is where the senior executive teams must show their leadership qualities
and add real value. Board members who may have the experience from previous
downturns should help to stabilise the ship, boost confidence among staff and
chart a course towards making competition irrelevant.

Year-end 2008 Asia Pacific M&A Bulletin

10 PricewaterhouseCoopers
The leadership team needs to take a closer look at the 3. Cash is king
business to fully understand how it is being impacted and
Financial pressure during the downturn will force many to
challenged by the downturn:
re-examine and minimise their investment in working capital
• Is our current strategy still relevant? – cash is king.

• How healthy is the order book? Those corporations emerging as sector leaders from past
recessions typically had an average net debt-to-equity ratio
• Are there any funding concerns? of about half of their less successful competitors before the
downturn. Successful businesses also held more cash on
• Were any business fundamentals glossed over in a their balance sheet than their competitors.
rush for growth that now need to be elevated to front
of mind issues? Managing cash is an everyday concern, but in a downturn
it becomes a heightened priority:
• Is our monitoring good enough in these new times?
• reviewing the adequacy of financing arrangements
• Do we have complex structures that currently limit
our options? • monitoring performance against financial and non-
financial covenants
• Should we be establishing an executive “turmoil team”
and if so what are its terms of reference and who • adopting a proactive hands-on approach to cash
should be on it? management

It is also important for senior executives to ensure clarity of • developing aggressive working capital management
their role going forward vis-a-vis the Board’s. It is not strategies
unreasonable that Boards will want to increase their
oversight of corporations and executives can expect both • minimising discretionary and non-discretionary
formal and informal interaction with Boards and their expenditures
Committees to increase during this period. This change
• enhancing controls over purchasing and order
needs to be embraced rather than shunned.
• What does the Board, and perhaps Non-Executive
Directors in particular, want now that they haven’t 4. Manage your sustainable cost base
needed before?
Corporations need to thoughtfully reassess the relationship
• How will the Board monitor the action plans that between cost and profits, to reduce the sustainable cost
address the current times? base whilst maximising profitability. In good times,
inefficiencies are tolerated more and unnecessary
complexities built into the way corporations conduct
2. Act decisively, focus on key drivers of value business remain unnoticed. However, the competitive
Strong corporations won’t sit back and wait for the storm landscape is changing so fundamentally that previous
to pass. The winners will be those who take tough business models may no longer be appropriate.
decisions and position themselves to take advantage of
the upturn when it comes. Asian corporations that benefited In an economic downturn, the emphasis must be on:
from previous economic downturns were those that acted • stemming value leakage
proactively and decisively, using the slump to steal a march
on their competitors. Senior executives should be taking • simplifying and improving end-to-end business
the time to consider their appetite for risk, its linkage to processes and business structures
growth and potential returns and identify new concerns
arising from the turmoil. This could possibly be achieved • improving the overall cost control environment and
by establishing a temporary “turmoil committee” to oversee creating a cost culture.
the various initiatives needed to steer through the
impending storm. Finance functions need to produce meaningful analysis
of cost spend by business unit, to enable self review
Now is a very opportune time to introduce or review the by the business and to help identify maverick spending
organisation’s risk management systems in support of and waste.
improved governance processes.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 11
The desire for cost optimisation and staying lean must be Times of crisis require extraordinary measures. Reports
tempered by the threat of control slippage. If not well are now circulating that some executives are no longer
thought out, the rush to cut out processes or to retrench waiting for outdated reports on the status of the cash
or re-deploy headcount, can unwittingly lead to serious balances from the cash book to materialise but are calling
quality, financial and reputational issues to name but a few. for daily or weekly updates on what the bank statement is
Well-designed control systems are a priority and should currently showing. Similarly, some are making more use of
not be compromised. Such control systems will focus on (or reverting back to) spreadsheets to extract the relevant
preventing problems occurring in the first place, be information needed to analyse their business.
supported by detection (monitoring) mechanisms and will
reinforce senior executive accountabilities for maintaining
effective control systems.
7. Plan for different scenarios
Managing in a downturn requires flexibility and an ability
5. Focus on what really matters – prioritise to anticipate and react quickly to changing circumstances.
This helps mitigate risks and better positions the business
Customers are the number one priority in a downturn. to seize new opportunities that may arise. To achieve this,
Those supporting their customers through these difficult management needs to invest time to assess operations and
times will gain respect and benefit from mutual advantages. consider possible scenarios, challenging themselves with
This is a good time to consider which customers or the what-if questions.
segments, products and channels are the most profitable.
These will provide the critical volumes to drive the business Nobody can fully predict what impact the current
through the economic turmoil. downturn may have on a sector or on a particular
organisation. To survive, management needs to plan for
Asian corporations need to rethink their investments and the potential eventualities, and address the organisation’s
consider deferring projects until the economic landscape resilience to handle the worst case and extreme scenarios.
becomes clearer. More fundamentally, exit strategies for
projects that are no longer relevant or critical should be A key initiative is also to establish or re-examine Business
considered. Senior executives, working with the Board, Continuity Plans which are often outdated and offer illusory
have a key role to play in establishing a culture of comfort. Too few organisations in Asia fully work through
continually re-challenging and re-prioritising. how they will react in a crisis in advance of the crisis itself.

6. Reliable management information is key 8. Recognise the value of your people

As the affects of the economic slowdown start to be felt, In tough market conditions, motivating employees and
Asian corporations will have an ever greater need for maintaining productivity levels is a major challenge.
reliable and up-to-date information to support timely and Whether the struggle is to deliver business as usual, or to
informed decisions. Many executives are beginning to manage a restructure, a critical first step is to identify
realise that their management information systems are talent that must not be lost during or after the downturn.
woefully inadequate or not sufficiently well designed to
manage key operational and cost levers. Having mapped the talent across the business and
identified the potential human capital risks, effective
Too often, the same reporting templates and key retention strategies are needed which can be immediately
performance indicators (KPIs) are used regardless of put into action. Waiting until the economic climate changes
changes in the external environment. To exacerbate is not an option. Innovative thinking is also required – use
matters, the information management relieson is often talent differently rather than adding to the headcount; offer
received late and out of date. internal promotions earlier than planned; offer employees
new challenges in a different part of the organisation. Most
KPIs and critical reporting templates should be importantly, continue demonstrating to employees that they
reconsidered and revised in light of changing are valued, offer them development opportunities and
circumstances. Increased emphasis should be placed on: discuss their future with the organisation.
• managing a smaller number of more reliable parameters Transparent and robust performance management
processes, with clear links to reward, help to ensure
• accelerating reporting processes and increasing employees feel recognised for their contributions and
frequency of reporting encourage the necessary behaviours to deliver targets.
• ensuring more regular exposure for the senior Reward structures applied during boom times may no
management and Board. longer be appropriate. Taking time to introduce

Year-end 2008 Asia Pacific M&A Bulletin

12 PricewaterhouseCoopers
appropriate incentives will promote behaviours necessary Structural change in an industry can be accelerated by
for an organisation’s survival and motivate commitment a slowdown, as the most progressive players implement
among employees. strategies that made sense all along, but may have been
difficult to push through in the good times because the
However market changes are responded to, communicating ‘burning platform’ wasn’t there. A downturn can be the
the business strategy and the employees’ role in enduring making of tomorrow’s market leaders, as the changes
the turmoil can make a significant difference to the implemented at this time will make businesses stronger
discretionary effort they will apply to help their organisation in the long term.
succeed. Regular communication with employees will
reinforce their commitment to the business and increase the
chances of retaining them now for when the upturn begins. Challenge as opportunity
In a downturn, numerous difficulties will present themselves
9. Take your stakeholders with you to Asian corporations – all important, all urgent. A natural
response may be to “batten down the hatches” and focus
Good stakeholder management is crucial to executing solely on today’s problems. Prudent management is
a winning strategy. It can enhance an organisation’s necessary but it is important to recognise the opportunities
reputation when performed during difficult times. presented – to challenge old ways of doing things, to take
advantage of weaker competitors, and to plan for the
Shareholders and debt-holders need to be engaged in
changed marketplace that will emerge.
a positive dialogue about how the downturn is being
handled, the opportunities presented, what is being done Effective management will help ensure organisations are
to address any underlying weaknesses and the strengths best placed to come through the bad times re-energised
that set the organisation apart from its peers. and fit for the future. Thriving in a downturn requires greater
diligence and skill than during favourable economic times.
Staying on customers’ agendas and rewarding loyalty
However, the rewards can be greater as businesses that
is essential. Key account management programmes can
adapt quickly with the right strategies can not only grow,
be an effective way of identifying the most profitable
but position themselves strongly for the inevitable upturn
customers and to ensure that adequate retention
that will happen.
programs are instituted.
Addressing any combination of the 10 priorities will enable
Open dialogue between employer and employees helps
organisations to do just that. It is now up to the corporate
safeguard an organisation’s assets. When money is tight,
leaders to play an active role in operationalising them and
it can be difficult to reward good performance, but there
to make it real.
must still be advantages for key and reliable employees.
Honesty with employees will engender trust and make it
easier for the organisation to attract talents.

Be inventive – consider alternative approaches to business 10 priorities for C-Suites to add value
and financing such as barter and debt equity swaps to get
1. Strengthen oversight
through the current period.
2. Act decisively, focus on key drivers of value
10. Take advantage of new opportunities 3. Cash is king
In line with the classical trade-off between risk and reward, 4. Manage your sustainable cost base
the economic downturn does present opportunities. Asian
corporations that are in good shape can ride the downturn 5. Focus on what really matters – prioritise
with greater flexibility to invest and are able to strengthen
their position at the expense of competitors. 6. Reliable management information is key

Difficult economic conditions do not mean that all 7. Plan for different scenarios
investment programmes should be halted and future growth 8. Recognise the value of your people
sacrificed. Rather, a clear understanding of the investment
landscape and risk levels should be obtained to help make 9. Take your stakeholders with you
appropriate and informed strategic decisions. There are
many opportunities to benefit from lower asset prices and 10. Take advantage of new opportunities
reduced competition during this downturn.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 13
Regional Economic Indicators
Asia Pacific Macroeconomic Indicators – End-Year 2008

Nominal GDP US$’billion Consumer Industrial Real GDP

Market Prices % Chg Production % Growth Chg
PPP (million)
Exchange YOY Chg YOY YOY

Australia 964.84 802.54 20.62 4.70 2.80 2.40

China 4,148.96 8,190.04 1,331.12 6.40 15.70 9.60

Hong Kong 217.64 314.14 7.02 4.50 0.40 3.80

India 1,186.14 3,392.62 1,148.00 7.80 4.70 6.30

Indonesia 493.34 922.30 237.51 10.50 1.60 6.10

Japan 5,058.83 4,420.52 127.29 1.80 -0.50 0.30

Malaysia 214.67 393.05 27.73 5.80 4.00 5.60

New Zealand 127.58 117.37 4.29 4.30 -1.20 0.30

Philippiness 161.57 322.90 92.68 9.60 4.60 4.40

Singapore 184.68 197.16 4.55 6.60 -5.80 2.00

South Korea 862.15 1,297.26 49.21 5.00 6.60 4.50

Taiwan 411.59 845.23 22.70 3.80 3.90 4.00

Thailand 272.40 560.49 67.00 5.80 7.00 4.50

Vietnam 84.70 243.69 86.12 24.50 16.70 6.10

Source: The Economist Intelligence Unit

Year-end 2008 Asia Pacific M&A Bulletin

14 PricewaterhouseCoopers
Our unique approach
to Post Deal Integration

Delivering the benefits whilst ensuring that focus is maintained on your core business growth
opportunities, business as usual, activity and other change programmes

Balancing integration with driving core business performance

Effective Objective challenge Maximise the

management of and robust process expected VALUE
PEOPLE through a to minimise expected through focus on
time of uncertainty RISK areas of benefit

Managing your key Maintaining strong Ensuring there are clear

stakeholders through control over the costs, objectives and targets to
the change: your benefit delivery, quality focus activity and critical
employees, your and scope of the resources on areas that
clients, your regulators programme add the most value

What is Post Deal Integration?

Post Deal
identification & Transformation

• Industry/Market analysis, • Integration fundamentals • Product/Service

target identification
• Integration programme • Systems
• Valuations and financial design and mobilisation
• People
due diligence
• Day 1 readiness
• Market
• VDD/Buy Side DD
• Synergy planning
• Operations
• Strategic market review
• Synergy realisation
and assessment
and tracking
• Operational DD
• Integration management
• Synergy Review office
• Change management
• Communications
• Cultural alignment
• Transition and end-state
operating model
• Full operational integration
eg. finance, HR, systems

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 15
Year-end 2008 Asia Pacific M&A Bulletin
16 PricewaterhouseCoopers

North Asia
People’s Republic of China 20
Hong Kong 22
Taiwan 26
Japan 30
Korea 34

South and Southeast Asia

India 40
Indonesia 44
Malaysia 46
Philippines 48
Singapore 52
Thailand 56
Vietnam 60

Australia 66
New Zealand 70

Regional Merger & Acquisition Contacts

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 17
Year-end 2008 Asia Pacific M&A Bulletin
18 PricewaterhouseCoopers
North Asia
People’s Republic of China
Hong Kong

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 19
People’s Republic of China
After years of growing deal activity, China experienced a decline in transactions
in June to November of 2008. Domestic M&A activity saw a rebound at the end
of the year; however it is unclear whether this was caused by a general recovery
or by a year-end rally also experienced in prior years

To accelerate investment and capital expenditure, a Rmb4 trillion

(US$586 billion) stimulus package for national infrastructure
and social welfare projects, including constructing new
railways, subways, airports, and hospitals, was announced.
US$100 billion was scheduled to be spent by the end of 2008.

Deal Activity
Matthew Phillips
Transactions Leader China Deal Activity
China Deal values Deal volume
50,000 1,000
45,000 900
40,000 800

Current Environment
35,000 700

No. of deals
US$ million

30,000 600
25,000 500
A favourite slogan among Chinese people during the recent 20,000 400
Olympic games was ‘中国人加油’ ‘Zhong Guo Ren Jia You’. 15,000 300
This can be translated as ‘Go China!’ and literally ‘Jia You’ 10,000 200

means ‘add gas’, for example to increase the heat or to re-fuel 5,000 100
- -
your car. Recent months have seen the need for the government 07 07 07 07 08 08 08 08
20 20 20 20 20 20 20 20
to ‘Jia You’ as economic growth started to slow significantly. 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
In 2008, GDP growth was 9.6%, but this was slower than the of 31 December 2008
record high of 11.4% in 2007, and by Q4 growth had slowed to
8% p.a. This reflected a slowdown across the economy but this
was most pronounced in exports and fixed asset investment. With 867 announced deals, deal activity in China’s M&A markets
in the fourth quarter of 2008 was down by 4% compared to the
In November 2008, Chinese exports declined for the first time same period last year. However, 2008 began strongly with 24%
in seven years as China’s main trading partners in Europe and growth in deal activity in the first six months, to reach 1,476
the US slipped into recession. At a national level this effect is announced transactions (valued at US$73 billion) in the first half
being partly offset by declining imports as global commodity of the year compared to 1,186 in the first half of 2007 (valued at
prices fall, but it is having a noticeable impact on major export US$40 billion). Activity levels dropped in the period June to
areas such as the Pearl River Delta. November, resembling deal activity levels last seen prior to
2006, largely because of global financial uncertainty. While the
China’s industrial output growth in October was the lowest in ‘real’ economy remained relatively robust, both strategic and
seven years, as falling investment growth (both domestic as financial buyers were waiting on the sidelines to see how events
well as FDI) in apartments, factories and infrastructure resulted developed. Deal activity in December 2008 was comparable
in a lower demand for steel, aluminium and cement. again with activity levels experienced in December 2007, mainly
driven by domestic deal activity.
However on the positive side, inflation, which reached a high in
February 2008 of 8.7% p.a., was down to 4% p.a. by November Inbound deal activity decreased by 11% in 2008 compared to
2008. This was due to reduced raw material import prices, as the prior year as foreign strategic buyers paused to see how far
well as the alleviation of the inflationary spike caused by pork global events would affect China, and also looked to preserve
shortages earlier in the year. The fall in inflation has allowed the cash to manage their existing operations ‘back home’.
government to change its policy emphasis from cooling
demand to stimulating the economy. Several policies introduced The manufacturing sector was the most active sector by
earlier in the year to prevent a bubble in the stock and real number of deals, while real estate was the biggest sector
estate markets have been reversed, including a reduction in by deal value. Some sectors have shown growth in 2008
interest rates; easing of property down payment regulations; compared to 2007, mainly as a result of higher activity levels
lowering of property transaction taxes; abolition of bank lending in the first half of 2008. Deals in media, textiles and
quotas; and a reversal of stamp duty tax on stock purchases. infrastructure showed growth compared to full year 2007.
This reflects some relaxation of foreign investment regulations
To increase export levels, VAT rebates were re-instituted for related to advertising; a consolidation in the garment industry
export companies. After three years of gradual appreciation of partly as a result of declining export demand; and the
the Rmb against the US$, a depreciation of the Rmb was increased popularity of the infrastructure sector, which is likely
noticed in November 2008. Although the increase in US$ to remain attractive after the announcement of the
value from 6.83 to 6.89 is small, it may have a positive impact government stimulus plan.
on exports.

Year-end 2008 Asia Pacific M&A Bulletin

20 PricewaterhouseCoopers
The new anti-monopoly law which came into effect on 1st economic conditions to improve. Many of China’s outbound
August 2008 has not obstructed companies from doing deals, investments from earlier years are showing large unrealised
with inBev’s acquisition of Anheuser Busch cleared by a losses, and while the current economic turmoil clearly
Ministry of Commerce (“MOFCOM”) review. However, the represents an opportunity for well funded Chinese buyers,
approval differed in some respects from what is common in they are understandably wary about moving too quickly.
other countries. While approving this transaction, MOFCOM
put in place restrictions on potential future acquisitions in The European bank and insurance company Fortis NV/SA
China by inBev/Anheuser Busch. was nationalised by the Belgian government at the end of
September, to prevent it from collapsing. Ping An Insurance
The inBev/Anheuser Busch merger was a transaction of two was the largest shareholder, with 5% of the shares in Fortis,
foreign companies with activities/subsidiaries in China. The and has asked for support from the Chinese government to
largest ever acquisition of a Chinese domestic company by a help negotiate with the Belgian government to have its losses
foreign company, Coca Cola’s proposed US$2.5 billion compensated. Ping An is referring to a treaty between Belgium
acquisition of Huiyuan Juice, announced in the third quarter of and China that was established to protect investors from
2008, is seen as a real test case of the new anti-monopoly law. losses resulting from nationalisation by the government.
Huiyuan is a domestic company with a famous brand in the
Chinese market, and the deal is therefore likely to be subject to As in earlier years, the main industries for Chinese acquisitions
significant scrutiny. abroad were still mining and financial services. However, other
sectors were evident, including deals in high-tech industries
such as medical equipment, hardware/software, and
Private Equity biotechnology. This reflects the increased level of maturity of
Both domestic and foreign Private Equity (“PE”) investors the Chinese economy and the shifting of China’s focus to
continued to raise China related funds (both Rmb as well as industries higher up the value chain.
US$ funds) during 2008. In 2008, approximately US$14.4 billion
was raised compared to US$7.3 billion in 2007. Outlook
Private Equity buyers see buying opportunities as valuations Although growth forecasts are being reduced, the World Bank
decrease and alternative sources of capital dry up, and have still expects GDP growth of 7.5% in 2009. While this would be
the cash to make acquisitions. However, vendors remain an enviable rate of growth in many countries, the government is
reluctant to accept lower valuations, leading to a ‘valuation keen to maintain a high level of growth to maintain rising living
gap’. Consequently, the number of deals fell by nearly 60% in standards and prevent social instability. Most commentators
the second half of 2008 compared with the same period a year expect a weak first half, followed by recovery in the second half
earlier, and average deal sizes remained quite small for the as the government stimulus package takes effect.
industry at less than US$100 million, although this number is
showing an upward trend. Looking forward, overall M&A activity in China will remain
slow in the first half of 2009 with some pickup anticipated in
Domestic Chinese PE funds are becoming more active, and, the second half as pricing expectations align, and both
since they do not need some of the approvals that foreign domestic and foreign buyers take advantage of opportunities
funds need, they have a faster transaction execution time to consolidate and restructure in sectors affected by the
compared to their foreign peers. This could be a big advantage slowdown. The government has also been discussing
in current market conditions where growth deals with minority permitting loans to finance M&A activity which would give the
stakes continue to dominate, with few leveraged buy-outs. market a further boost.
Another reason for decreased financial buyer activity is that the We expect to see foreign investment into China increase as
IPO exit opportunities have ceased as a result of the current well as outbound deals to secure resources at relatively low
stock market conditions. Many of the deals done in 2007 were prices. One possibility is Chinese buyers making tender offers
pre-IPO investments. This type of transaction is not currently for oil and mining companies listed abroad, benefiting from falls
viable, and many of the pre-IPO deals which were done in 2007 in stock market prices, and the same could happen in China
are now coming unstuck and need to be restructured. with PE investors focusing on Private Investment in Public
Equity. Within China, PE deals may be the first to recover.
Outbound But given its much larger scale, domestic and foreign strategic
buyer activity will need to stage a strong recovery if we are to
Outbound deal volume slightly decreased in the second half of see any growth at all in 2009.
the year compared to the same period last year, falling 7% to
96 transactions, again due to the impact of the global Despite present difficulties, we expect M&A activity in China to
economic downturn. Chinese companies still have money and recover more quickly than other regions of the world, largely
government support to invest abroad but have put M&A due to both China’s comparatively strong current growth rate,
activities on-hold in the second half of 2008 to wait for overall and the longer term potential offered by the Chinese market.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 21
Hong Kong
Weakening exports are likely to lead to negative growth. Conditions in 2009
will depend on the resumption of growth in key export markets including the
US and China

in the same period in 2007, reflecting the slowdown in

business activities in both the domestic and overseas
trade sectors.

As a result of poor economic fundamentals, the Hong Kong

stock market fell substantially in 2008, as the Hang Seng
Index dropped by over 65% from the record highs of
31,000 in October 2007 to 10,680 in October 2008.
Market capitalisation also dropped by over 39% from
David Brown
US$2,633 billion in the fourth quarter of 2007 to
Transactions Leader
US$1,600 billion in the third quarter of 2008. In line with
Hong Kong
other exchanges, the market staged a modest rally
towards the end of 2008.

The number of IPOs dropped significantly from 82 in 2007

Current Environment to only 28 in the first three quarters of 2008. The funds
Hong Kong’s economy slowed notably in the third quarter raised through IPOs also fell significantly from US$37.2 billion
of 2008 with GDP growth of 1.7% in real terms compared to US$8.0 billion in the respective periods.
to the 4.2% growth seen in the second quarter of 2008.
The Hong Kong property market has retreated in 2008 after
This was the slowest pace since 2003 when Hong Kong
a surge in 2007. Buying sentiment, particularly for
was hit by the SARS crisis. In November 2008, the HKSAR
residential properties, was dampened by the discouraging
government lowered the GDP growth forecast from 4.0%
performance of the financial markets and the continued
– 5.0% to 3.0% – 3.5% in real terms for the full year 2008,
news of recession around the globe. The overall number of
implying negative growth in the fourth quarter of 2008 for
sales transactions on residential properties declined by
the first time since mid 2003.
nearly 40% during third quarter of 2008 compared to the
Total export of goods grew by 1.4% in real terms in the third same period in the prior year.
quarter of 2008 compared to 4.4% growth in the second
quarter of 2008, representing a deceleration from the first
two quarters of 2008 and also the worst performance since Deal Activity
the first quarter of 2002. Exports to the advanced
economies, notably the US, were directly affected by the Hong Kong Deal Activity
rapidly slowing demand in these economies as a result of Deal values Deal volume
the global downturn. 35,000 450
Growth in the export of services in the third quarter of 2008 25,000

softened to 5.3% compared with 8.1% in the second 300

No. of deals
US$ million

quarter of 2008 caused by the deceleration in exports of 250
financial services amid the financial market distress and the 15,000
notably slower pace of expansion in inbound tourism. 10,000
Overall consumer prices rose by 3.1% in November 2008 - -
compared to the equivalent period in 2007. Netting out the 20 07
20 07
20 07
20 07
20 08
20 08
20 08
20 08
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
effects of the Hong Kong SAR Government’s one-off relief
measures, including the Government’s payment of three Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
month’s public housing rentals, the implementation of an of 31 December 2008

electricity charge subsidy, and a government rates

concession, the increase in the composite Consumer Price The value of deal activity in the second half of 2008
Index in November 2008 was 5.6%, compared to 3.4% in decreased to US$25.3 billion from US$41.1 billion in the
2007. The increase was due mainly to a surge in food and first half of 2008. For the full year 2008, deal values
energy prices, as well as hikes in housing rent. increased by 0.2%, or US$123 million, compared to 2007.
However the number of announced deals decreased from
The seasonally adjusted unemployment rate in September 1,508 to 1,148. Some of the major deals in each industry
to November 2008 was 3.8%, a slight increase from 3.6% sector included:

Year-end 2008 Asia Pacific M&A Bulletin

22 PricewaterhouseCoopers
Telecommunications Jade Green Investments Ltd., a subsidiary of Hong Kong
listed company Fushan International Energy Group Ltd.,
China Unicom Ltd, the Hong Kong listed arm of Unicom
agreed to acquire three coking coal mines located in
Group, agreed to merge with China Netcom Group
Shanxi from Fortune Dragon Group Ltd. for US$1.35 billion
Corporation (HK) Ltd, a Hong Kong listed domestic
in May 2008. The acquisition will help Jade Green
counterpart in June 2008 for US$29.6 billion. The offer
Investment Ltd. expand its business and strengthen its
price represented a premium of 3.0% over China Netcom
competitiveness in through economies of scale. The deal
share’s closing price on 30 May 2008. After the merger,
was completed in July 2008.
China Netcom became a wholly-owned subsidiary of
China Unicom. The deal was completed in October 2008.
Financial Services
PCCW Limited announced in November 2008 a proposal
China Merchants Bank Co Ltd (“CMB”), a Shanghai and
to take the company private. This followed the unsuccessful
Hong Kong dual listed commercial bank, announced the
sale of 45% of HKT Group Holdings Ltd, a subsidiary of
acquisition of Wing Lung Bank Ltd, a Hong Kong listed
PCCW Limited providing telecommunications services,
bank for US$4.7 billion in June 2008, and the transaction
media and information technology businesses, in October
was completed in October 2008. This acquisition offers
2008 due to lower than expected offers from bidders
CMB an opportunity to establish a sizeable customer base
as a result of the deterioration in market conditions.
and distribution network in Hong Kong.
The proposed privatisation has been granted consent by
the Office of the Telecommunications Authority, but is still CITIC Group Holding, a China based investment holdings
subject to shareholder approval at the time of writing. group, together with a listed Spanish bank, Banco Bilbao
If the privatisation proceeds, it is expected that companies Vizcaya Argentaria SA (“BBVA”), proposed to take private
connected with Richard Li would hold 66.7% while China CITIC International Financial Holdings (“CIFH”), a financial
Netcom would hold the remaining 33.3%. services subsidiary of CITIC Group Holding listed in
Hong Kong, through a scheme of arrangement in June
Real Estate 2008 for US$1.5 billion. The transaction was completed
in November 2008.
Hong Kong listed real estate developer Franshion
Properties (China) Limited agreed to acquire Wise Pine
Limited, a Hong Kong real estate and hotel investment Retail
company, from Sinochem Hong Kong Group Company The Coca-Cola Company announced an offer in
Limited and seven other shareholders for US$2.2 billion in September to acquire the entire outstanding share capital
June 2008. The acquisition will help Franshion Properties of a Hong Kong listed company, China Huiyuan Juice
tap into the luxury hotel sector and strengthen its position Group Ltd. for US$2.5 billion. The Coca-Cola Company
in property and hotel operations. As at January 2009 the plans to leverage the position of Huiyan as a leading
deal has not been completed and is still subject to domestic juice maker in China, allowing it to be more
regulatory approval. competitive in terms of branding and sales effectiveness.
The deal is currently under regulatory scrutiny, as it would
Energy and Mining be the largest foreign takeover of a local firm, and faces
strong opposition from other domestic juice producers as
Black Sand Enterprises Limited, a subsidiary of the
it may threaten their market share in China.
Hong Kong listed investment holding company Intelli-
Media Group (Holdings) Ltd. engaged in the distribution
of video products, has agreed to acquire First Pine Transportation and Logistics
Enterprises Limited, a Filipino company engaged in mining Enric Energy Equipment Holdings Ltd, a Hong Kong
activities, from Kesterion Investments Limited, a BVI listed company, agreed to acquire Sound Winner Holdings
based investment holding company, for US$730.7 million Limited, a Chinese transportation services provider owned
in May 2008. The acquisition is in line with Black Sand by China International Marine Containers (Hong Kong)
Enterprises Limited’s strategy to diversify into the Company Ltd. and CIMC Vehicle Investment Holdings
business of exploration, drilling, mining, and trading of Company Ltd. for US$805 million in September 2008.
natural resources, particularly the mineral magnetite in The acquisition will enable Enric Energy Equipment
sand form. Holding Ltd. to expand its business segments as well
as strengthen its financial performance.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 23
Private Equity The Hong Kong government and Hong Kong Monetary
Authority have recently taken measures, such as the
Morgan Stanley Private Equity Asia, a Hong Kong based
HK$100 billion loan guarantee to non-listed companies,
private equity unit of Morgan Stanley and Shinhan Financial
to unfreeze the credit shortage and inject liquidity back into
Group Co Ltd, agreed to acquire Norske Skog Korea Co.
the banking sector, and aid small and medium enterprises
Ltd. from Norske Skogindustrier ASA, a listed Norway
(“SMEs”). It remains to be seen whether these government
based producer of printed paper, for US$833.1 million in
measures will alleviate the financial crisis but it should at
August 2008. The transaction is in line with Norske
least provide relief to SMEs in the short term. However, all
Skogindustrier ASA’s strategy to reduce its debt levels by
companies will need to manage their cash flow and working
approximately 25%.
capital needs effectively, in particular assessing counterparty
Asia Packing Group Holdings Limited, a Hong Kong based and supply chain risks. Steps to manage cost levels will also
investment holding company formed by CVC Capital be imperative in managing the current downturn.
Partners Limited, acquired a 53.9% stake in Hung Hing
IPOs in Hong Kong are expected to rebound slightly in
Printing Group Ltd, a listed Hong Kong based company
2009, on the assumption that the economies of Hong Kong
engaged in the printing and manufacturing of paper and
and China will stabilise in the second half of 2009.
carton boxes, for US$112.2 million in April 2008. The
transaction was completed in July 2008. In respect of M&A, both corporate and financial buyers
continue to look for attractive deals despite the current
environment. However, most transactions have been put
Outlook on hold as buyers lower their prices but sellers are
unwilling to lower their valuations significantly, creating a
Hong Kong’s economy is still closely tied to the major valuation gap. Most M&A deals are expected to be delayed
economies around the world and the current global in the first half of 2009, but there will be a quick recovery
economic crisis is expected to have a significant impact on when the valuation gap starts to narrow sometime in the
Hong Kong’s economy in 2009. Hong Kong’s export orders second half of 2009. Obtaining financing may continue to
will likely decline, reflecting weak retail markets in the US prove more challenging and costly. M&A activity in 2009
and Europe. Companies with close ties to the Chinese could see more of a shift to strategic investors with strong
economy are also likely to face challenges, particularly in balance sheets looking for undervalued companies or
the first half of 2009. distressed businesses.

Year-end 2008 Asia Pacific M&A Bulletin

24 PricewaterhouseCoopers
Asia Pacific M&A Bulletin Year-end 2008
PricewaterhouseCoopers 25
Improving cross-straits relationship with mainland China likely to enhance
outlook for the economy and deal activity going into 2009

Deal Activity
Taiwan Deal Activity
Deal values Deal volume
7,000 70

6,000 60

5,000 50

No. of deals
US$ million
Peter Yu 4,000 40

Corporate Finance Leader 3,000 30

Taiwan 2,000 20

1,000 10

- -
7 7 7 7 8 8 8 8
200 200 200 200 200 200 200 200

Current Environment 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
of 31 December 2008
Taiwan’s GDP growth contracted sharply at an annualised
rate of 1% in the third quarter of 2008, compared to 4.3% The value of announced deals declined 56% in 2008
growth in the first half of the year. The CPI also registered compared to 2007, with a total deal value of US$6.1 billion,
a decline, by 1.3% p.a. in December. With consumer prices comprising 210 deals. Following the global economic
falling and the economy sliding rapidly, the government downturn and the credit crisis, the market has cooled,
has launched a series of fiscal stimulus efforts, including with buyers remaining wary of risk, and limiting
consumption voucher distribution, a range of tax cuts, investments and acquisitions, while optimistic sellers hold
and injections of government funds into capital markets, out for higher prices.
all designed to bring Taiwan out of recession.
Here are some of the important deals in the second half
The global economic downturn has hit both Taiwan’s of 2008:
financial and non-financial industries. Taiwan’s moderately
capitalised banking sector will be hard pressed to
Outbound activity
deal with the twin challenges of an imminent increase
in provisions and government pressure to support • Magellan Navigation, Inc. announced it has entered
distressed corporations. Meanwhile, Taiwan’s important into a definitive agreement to sell its Magellan
semiconductor sector is expected to see a 4% reduction consumer products division to MiTAC International
in revenue, according to the Industrial Economics and Corp. The transaction is expected to close in January
Knowledge Centre (IEK). 2009. The acquisition will give MiTAC a boost in market
share and brand recognition in key markets like the US.
The Taiwan Stock Exchange Index (TAIEX) has declined
46% to the end of December, making its 2008 • HTC has acquired the San Francisco-based firm
performance one of the worst in the past 30 years. One & Company Design. The two have collaborated
The TAIEX currently trades at 1.3x PBR and 8.0x P/E, since 2006, jointly creating HTC Touch Diamond.
on a trailing basis. Given that stock valuations have fallen One & Co will maintain its name and client base while
to an unprecedented level, this may prove a good time it joins forces with HTC to create a significant player in
to look for M&A opportunities. global mobile design.

Year-end 2008 Asia Pacific M&A Bulletin

26 PricewaterhouseCoopers
Inbound activity • China Times Group (CTG) entered into an agreement
to be acquired by Tsai Eng-Meng and his family. Tsai is
• Micron Technology, Inc. announced that it is
the Chairman and an Executive Director of Want Want
expanding its partnership with Nanya Technology
China Holdings, which is listed in Hong Kong and is the
Corporation, and signing a definitive agreement to
largest baked-rice foods firm in China. CTG operates
acquire Qimonda AG’s 35.6% stake in Inotera
various media businesses in Taiwan, including TV
Memories, Inc., a leading Taiwanese DRAM memory
stations, newspapers, internet, and magazines. The
manufacturer, for US$400 million in cash. To help fund
US$475 million acquisition is a personal investment
the purchase, Micron has obtained US$285 million in
by the Tsai Family and is financed entirely by the Tsai
term loan financing commitments from strategic
Family’s own sources of funds.
sources at favourable terms.
• WPG, the world’s third largest and Asia’s number
• Marubeni Corporation, a listed Japan-based trading
one integrated circuit (“IC”) distributor, announced
conglomerate, acquired a 21.4% stake in Hsin Tao
its second transaction this year. Following the
Power Corporation, from China Development Industrial
acquisition of Pernase Enterprise in the first half,
Bank (CDIB), Fubon Insurance, Fubon Life Insurance Co
WPG announced the acquisition of Asian Information
and TSRC Corporation (TSRC), for a total consideration
Technology for US$199 million in October 2008.
of US$77 million. Hsin Tao Power Corporation is a
In recent years, WPG has actively merged with the
Taiwan-based electricity utility company. China
other IC distributors through share swaps to quickly
Development Industrial Bank (CDIB) is a Taiwan-based
expand its scale and network.
investment company. Fubon Insurance is a Taiwan-
based provider of a range of insurance services.

• Shin Kong announced it had signed a memorandum of Outlook

understanding with Japan’s second largest life insurer,
M&A activity is expected to become moderately stronger
Dai-ichi Life Insurance Company, regarding its planned
in 2009, compared to the second half of 2008. Some
TW$8 billion fund raising. The Japan-based life insurer
cancelled or delayed deals from 2008 may re-emerge
will invest in Shin Kong FHC common shares, up to
in 2009, particularly if there is a narrowing of valuation
14.9% of the outstanding shares (including its existing
expectations between buyers and sellers. Asset deals,
shareholding of about 6%).
such as business diversification and subsidiary disposal,
are likely to be more common than share deals in the
coming year. In particular, overcapacity in the technology
Domestic deals
industry may lead to asset deals to solve this problem.
• Fubon Financial Holding Co., Taiwan’s second-largest Capital raisings are likely to remain problematic.
financial services firm, agreed to pay US$600 million
for ING Group NV’s Taiwan unit to boost its customer
Financial sector
base by around a third. The acquisition will add
TW$612 billion (US$19 billion) of assets, propelling In the financial sector, there are likely to be three main
Fubon to number four from number six, in Taiwan’s drivers of increased M&A activity in 2009. Firstly, investment
insurance market. Fubon will almost double its life losses mean that some institutions now breach capital
insurance business, and ING’s customers are also adequacy ratios, which will compel both capital raisings
potential customers to Fubon’s other financial service and the disposal of assets. This has already been seen in
products, such as banking and stock transactions. 2008 in the cases of Fubon Financial Holdings’ acquisition
ING will hold a 5% stake in Fubon and the company’s of ING Insurance Taiwan and the Japanese Dai-Ichi Mutual
bonds after the transaction is completed. Life Insurance investment in Shin Kong Holding.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 27
Though not necessarily M&A transactions, investment companies. The government is also encouraging
deals in the financial sector are expected to continue, and integration among domestic manufacturers, and facilitating
put investors in significant minority positions post- cooperation among domestic makers and their US and
transaction. Secondly, Taiwan has historically been over- Japanese counterparts. Flat screen TV panel makers are
banked. The ongoing process of consolidation, both by also facing difficulties with panels approaching cash cost,
local and international players, is likely to resume, with and prices continuing to fall. Panel makers are reducing
smaller institutions being absorbed by larger companies. production, and this is putting pressure on TFT component
companies, increasing the likelihood of consolidation in the
Additional opportunities should arise from the easing of future. We expect that Taiwan’s DRAM and TFT sectors will
cross-strait investment restrictions which may facilitate the be able to develop in a positive direction in the long run,
pursuit of investment targets in Taiwan by China-based as a result of this consolidation opportunity.
financial institutions. With the recent signing of a
memorandum of understanding on financial cooperation, As the downturn continues, cheaper stock valuation may
alliance-building share swaps between cross-strait entice cash-rich corporations in Taiwan to seek outbound
financial institutions could occur in the new year. opportunities. Taiwan’s MiTAC, which acquired the
consumer products division of Magellan to expand its
Finally, independent investment trust companies may market, serves as a typical example. Recent outbound
attract the interest of foreign firms planning to enter the deals have also stemmed from Taiwan corporations
Taiwan and China asset management markets. Since the wanting to move up the value chain or expand into
Taiwan government has stopped licensing new investment international markets. In other cases, Taiwanese
trust companies, the only way to enter the Taiwan market corporations have made outbound acquisitions in order
is through acquisition of existing local investment trust to enhance their own operations, such as HTC acquiring
companies. One & Company Design.

M&A activity may also be driven by a number of

Non-Financial sectors
companies, across a range of sectors, which issued
The downturn has severely impacted several sectors in convertible bonds during the boom years. These bonds
Taiwan, especially semiconductors. Overcapacity and often had put options attached which are now being
over-investment, combined with falling demand, have exercised, since conversion to equity is unattractive at
turned most DRAM and thin film transistor (“TFT”) makers current prices. Companies having to redeem bonds are
into money losers in 2008. The Ministry of Economic Affairs likely to have to raise funds from a number of sources and
has approved a rescue package for local Taiwanese DRAM this is likely to drive deal activity.

Year-end 2008 Asia Pacific M&A Bulletin

28 PricewaterhouseCoopers
Asia Pacific M&A Bulletin Year-end 2008
PricewaterhouseCoopers 29
The economy continues to weaken, however the strong balance sheets of
many Japanese companies may help to support outbound M&A

Japanese export sector, with many major corporates

struggling to remain competitive. Even Toyota is
forecasting an 18% year-on-year sales decline, and a close
to breakeven result (versus profits of US$17 billion in the
prior year). In November, the Fitch credit rating agency
announced a downgrade for Toyota to AA status.

The Bank of Japan has continued to move interest rates

lower in an attempt to maintain liquidity and the target call
Matthew Wyborn rate ended the year at a level of 0.1%.
Corporate Finance Leader
Asia Pacific There are increasing examples of the impact of the
downturn on the corporate sector, with Tokyo Shoko
Research reporting that over 14,000 companies became
bankrupt in the period from January to November 2008.
Current Environment Around 10% of this number had filed due to an inability to
finance their working capital needs, and this trend has been
The Japanese economy has experienced negative GDP
increasing month on month. In addition, a total of 30 listed
growth since the second quarter of 2008 at an annualised
companies filed for bankruptcy, the largest number since
rate of 0.4%, meaning the country is now officially in
World War II, while non-performing loan levels within the 11
recession. A decrease in both corporate capital expenditure
major banks had risen to a reported level of US$43 billion at
and net exports of services contributed to the decline,
the end of the third quarter. In response, the Bank of Japan
although consumer consumption has until recently
held an urgent monetary policy meeting on 2 December to
remained relatively stable. However, consumer confidence
establish emergency steps aimed at easing the situation for
is weakening, and with machinery investment also in
corporations, and improving their ability to finance working
decline, the economic outlook is not encouraging.
capital and capital investment needs. This move constituted
Outbound Foreign Direct Investment (“FDI”) increased the first emergency policy to be issued since 1998 when the
during 2008 (peaking at US$23 billion during the third Asian economic crisis hit Japan. The policy aims to inject
quarter), while inbound FDI declined to US$1.6 billion in US$30 billion for banks to provide loans to corporations.
the same period. Inbound FDI even turned negative in
July 2008, showing an outflow of US$323 million,
indicating that foreign investors were cashing out on their Deal Activity
investments. The accumulated level of inward FDI stands
at just over US$150 billion (year-end 2007). Although the
Japan Deal Activity
government has launched a programme to encourage
Deal values Deal volume
such investment, in the current economic circumstances 60,000 900
it will be a challenge for the country to achieve its stated 800
target of doubling FDI to 5% of GDP by 2010. 700
40,000 600
No. of deals
US$ million

On the stock market, the Nikkei Index dipped to a low of 500

7,141 points at one stage in October, the lowest point since 400

1982, and the market ended the year at a level of around 20,000 300

8,800. The 10-year Government Bond (JGB) rate decreased 10,000

to 1.3% by December, but did not stem a flow of pension - -
funds from equities into bonds. Market analysts do not 2 00
2 00
2 00
2 00
2 00
2 00
2 00
2 00
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
expect to see a marked recovery in the Nikkei Index over
the near term. Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
of 31 December 2008

The economy has been heavily impacted by a sustained

appreciation of the Japanese Yen during the second half of According to MARR (the M&A Research Report), total deal
2008 against most major currencies. With the exchange volume in the second half of 2008 was 1,199 against a level
rate hardening to a level of around ¥90 to the US Dollar, the of 1,200 deals in the first half. The full year total of 2,399
strong currency has had a negative impact on the deals in 2008 compares to a level of 2,696 deals in 2007.

Year-end 2008 Asia Pacific M&A Bulletin

30 PricewaterhouseCoopers
There were 199 reported outbound deals in the second half • Nomura Holdings Inc. of Japan surprised the market by
of the year, providing a full year total of 377 in 2008 (against moving rapidly in late September 2008 to acquire the
367 deals in 2007). Inbound activity included 100 deals in European and Middle Eastern equities and investment
the second half, with the full year total of 198 deals in 2008, banking operations of bankrupt Lehman Brothers
well down on the corresponding level of 309 deals in 2007. Holdings Inc, a New York-based investment bank,
for a nominal consideration of US$2.
The most notable trend in 2008 has been the acceleration
of big ticket outbound transactions, although the Although much of the eye catching activity has been
announcement by Daichi Sankyo of a US$3 billion (60%) outbound, there have also been a number of major
impairment write-down only months after their initial domestic deals, especially in the food, wholesale, and
investment in Ranbaxy tempered the excitement somewhat. pharmaceutical segments. Significant domestic deals
This trend was driven by major corporates taking steps to announced in the second half of 2008 include:
expand beyond a saturated domestic market and acquire
brands or market share overseas. While the slowdown in • Meiji Dairies Corporation, the largest dairy producer,
global M&A hit Japan in the fourth quarter, there have still agreed to merge with Meiji Seika, the second largest
been signs of activity from consumer sector companies producer of cakes and baked goods, to form a new
looking to take advantage of the strengthening Yen. company, Meiji Holdings, in a stock swap transaction
The most notable outbound activity included: valued at US$1.8 billion. The revenues of the merged
company will be in the range of US$11 billion, ranking
• Shionogi Pharmaceutical acquired Sciele of US for Meiji Holdings as the fifth largest food and beverage
US$1.5 billion. The deal brings an international sales company in Japan.
force to help Shionogi penetrate overseas markets for
its metabolic syndrome products. Shionogi had • Nippon Oil Corporation, the largest oil wholesaler in
previously granted overseas distribution rights to Astra Japan announced a merger with Nippon Mining
Zeneca, a relationship which will continue for existing Holdings (the number six player), scheduled to complete
drugs such as Crestor. in the latter months of 2009. The merger of the two
companies will consolidate production capacity, and,
• Kirin Holdings acquired Dairy Farmers, the second at US$130 billion, the revenues of the merged company
largest dairy producer in Australia for US$570 million would rank it as the eighth largest oil/petroleum
through its Australian subsidiary, National Foods. wholesaler in the world. However, given that the merged
Subsequently Kirin has also announced an offer business would have a 33% domestic market share,
(as yet unaccepted) to acquire Coca Cola Amatil, the Japan Fair Trade Commission is still investigating
the largest beverage maker in Australia, through the merger under Anti-Trust Laws.
another subsidiary, Lion Nathan. This activity is
intended to build Australasia as an export base for • Panasonic announced its intention to acquire shares
Kirin to expand into Southeast Asian markets. in Sanyo Electric from the three major shareholders:
Goldman Sachs, Daiwa SMBC Securities, and
• Suntory agreed to acquire New Zealand-based Frucor, Sumitomo Mitsui Bank Corporation (SMBC), each of
a beverages subsidiary of Danone, for US$750 million. which had previously invested in preferred shares under
Frucor holds the production license for Pepsi in Sanyo’s business recovery plan. Sanyo has been in
New Zealand (as does Suntory in Japan). In addition, financial trouble for more than decade, and the
the deal provides a distribution channel for Frucor proposed transaction would see consolidation through
products into Asia. the reforming of a group that was broken up many years
ago when Sanyo was spun out of Panasonic.
• Late in the year, Asahi announced that it had reached
agreement to acquire the Australian beverages business Activity in the inbound sector and by financial investors
of Cadbury in a US$800 million transaction. has been relatively muted during recent months, and it
would appear that the focus of private equity, after some
Japanese financial institutions were also prominent investors
notable transactions closing in August 2008, is to focus on
in cash calls by distressed US financial institutions:
generating cashflow improvements in their existing
• MUFJ accepted a private placement in Morgan Stanley portfolio in order to counter the risk of covenant breaches.
for US$9 billion and now holds a 20% stake in the One of the more prominent and active funds, MKS, has
company, structured through a mix of common and announced an intention to close. The period also has seen
preferred shares.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 31
the withdrawal of opportunist hedge funds and activist
funds with The Children’s Investment Fund (TCI), divesting
its 9.9% stake in JPower in November 2008, and Steel Global economic prospects will continue to be the
Partners reporting sales of several investments. dominant factor influencing the M&A environment in 2009.
Tightened liquidity and difficult trading conditions will
On the regulatory front, the Ministry of Economy, Trade, place pressure on Japanese companies, although this
and Industry (METI) recently announced that it is continuing will be mitigated to some degree by their cash holdings.
to work on plans for a Comprehensive Economic The strong Yen also provides an advantage for companies
Partnership in East Asia (“CEPEA”). CEPEA is an economic looking outbound from Japan. However, given the
strategy aimed at creating a virtuous growth cycle in Asia economic environment, even with a relatively healthy
through the formation of an economically united region financial standing and the backing of a strong currency,
across 16 Asia Pacific countries (covering ASEAN, China, it is unlikely that conservative Japanese manufacturers will
Korea, India, Australia, New Zealand and Japan). The plans seek to engage in aggressive M&A activity at levels greater
represent a continuation of the progress achieved in 2008 than their free cashflows.
upon the signing of the ASEAN-Japan Comprehensive
Economic Partnership (“AJCEP”) Agreement with the In the outbound sector, we would expect to see a
10 ASEAN member states and through the establishment continuation of the trend for companies with a good
of an Economic Research Institute for ASEAN and East domestic market position and adequate cash to seek
Asia (“ERIA”). opportunities to acquire overseas brands or patents and
international market share. Active sectors are likely to
In other areas, METI has also announced plans to amend include food and beverages, pharmaceuticals, chemicals
tax regulations through the exemption from tax of dividends and electronics.
paid by overseas subsidiaries (with an equity investment of
25% or more) to a parent in Japan. The move is intended to The prospects for inbound investment will be limited given
facilitate efficient global fund flows for Japanese the strong Yen, although a further round of corporate
corporations. In December 2008, the Ministry of Finance restructuring brought on by the challenging economic
also announced proposals to amend the rules governing circumstances will create opportunities in distressed
foreign private equity and other fund investment into Japan, situations. We may see activity in sectors such as
including changes to the determination of a permanent construction, general manufacturing, retailing and
establishment and the application of the 25/5 rule to certain wholesale distribution, especially in the areas around
foreign partners. Tokyo and Osaka.

Year-end 2008 Asia Pacific M&A Bulletin

32 PricewaterhouseCoopers
Asia Pacific M&A Bulletin Year-end 2008
PricewaterhouseCoopers 33
GDP growth is expected to remain positive but has decelerated sharply.
M&A activity by value is also down but is likely to recover in 2009 on the
back of distressed M&A opportunities and corporate divestitures

volatility spilled over into concerns about economic

growth. In particular, investment in the construction sector,
continued to contract in spite of government attempts to
revive spending via numerous supply side initiatives.
In addition, the unwillingness of banks to lend due to
economic uncertainty severely hampered credit expansion,
and initiated a painful deleveraging process towards the
end of the year. While this economic scenario maybe
Sang-Tai Choi similar to other countries, Korea faces additional
Transactions Managing Partner challenges as total private sector debt (debt of non-
Korea financial firms and households), was approximately 176%
of GDP at the end of the first quarter 2008.

The weakening domestic economy overshadowed other

Current Environment important developments during 2008. The Korean
government announced a three-round privatization process
The Korean economy is believed to have expanded 4.2% in September that pledged to merge or privatise
in 2008, nearly a percentage point below 2007. Based on government ownership in over 100 state-owned
preliminary figures, the economy maintained strong enterprises, including a number of large financial
momentum in the first half, growing at 5.3% p.a., but institutions. The government also committed to strengthen
economic growth appears to have sharply decelerated in trade liberalisation efforts by continuing efforts to finalise
the second half of 2008. the free trade agreement (FTA) with the US and
negotiations with the EU to sign an FTA. Announcements
Overall, exports continued to be the economy’s main were also made for a new initiative to sign FTAs with other
driver of growth, expanding 13.7% year-on-year in 2008. key emerging markets in 2009. Finally, relations between
While the diversification of exports to emerging markets North and South Korea worsened in December as the
helped South Korea maintain growth through most of the North cut off rail transport links between the two countries.
year, export growth noticeably decelerated in November
and December as global demand stalled. However, the Future prospects of decelerating economic growth,
global economic slowdown also provided some benefits combined with substantial outflows of capital, led to a
for Korea, as the declining price of oil reversed escalating downturn in equity markets. The KOSPI was down 38%
import prices and relieved inflationary pressures that had at the end of the year, while the smaller KOSDAQ fell 53%.
contributed to a burgeoning trade deficit and sapped Investor risk aversion sparked a global sell off in equities,
domestic demand. Korea ultimately posted a US$13 billion particularly in emerging markets, negatively impacting
trade deficit in 2008, and, more importantly, posted a Korean stocks; foreign investors were net sellers of roughly
current account deficit for the first time since 1997. US$40 billion of Korean equities in 2008.
A current account deficit, combined with market concerns
over domestic financial stability, contributed to the Korean Two developments in 2008 will have long-term positive
won’s 26% loss against the US Dollar in 2008. implications for the nation’s capital markets. Firstly, the
Korean government raised the ceiling for equity purchases
Domestic demand remained weak because of poor by state-backed pension funds, potentially strengthening
consumer and corporate sentiment. Personal consumption the role of institutional investors. Secondly, the FTSE’s
expanded roughly 2% in 2008, while fixed investment grew addition of Korea as a developed country to its index in
by only 1%. Consumers scaled back purchases and firms September should lead to increased capital inflows over
cut capital expenditure as increased global financial the long-term.

Year-end 2008 Asia Pacific M&A Bulletin

34 PricewaterhouseCoopers
Deal Activity Finally, HSBC abandoned a US$6.3 billion bid to acquire
51% of Korean Exchange Bank (currently owned by Lone
Star) in September. HSBC originally submitted the bid in
Korea Deal Activity
September 2007, however, management dropped the bid
Deal values Deal volume
30,000 450
when the initial price became untenable in the context of
400 current banking valuations.
20,000 300
No. of deals
US$ million

200 Hite Brewery, one of South Korea’s largest liquor producers
10,000 150 and wholesalers, spun off its core manufacturing business
unit to its shareholders in July. The transaction, which
- -
resulted in the formation of a new company named HB,
2 00
2 00
2 00
2 00
2 00
2 00
2 00
2 00
8 was valued at approximately US$1.8 billion. Hite hoped the
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
transaction would provide greater focus for core operations
Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as and increase overall production efficiency.
of 31 December 2008

Hanhwa, one of Korea’s largest industrial chaebols, was

Total deal value for the second half of 2008 fell 66% from selected as the preferred bidder for Daewoo Shipbuilding
the first half of the year to US$10 billion. For the year as a and Marine Engineering (“DSME”) in October. DSME was
whole total deal value was US$40 billion, 37% lower than initially put up for sale by Korea Development Bank and
2007 levels. A pronounced global economic slowdown the Korea Asset Management, DSME’s two biggest
and the unwillingness of domestic banks to fund large shareholders, which own 31.3% and 19.1%, respectively.
transactions contributed to the notable decline. Overall, The transaction is speculated to close in a range from
domestic transactions totalled US$28.3 billion in 2008; 6.0 trillion won to 6.5 trillion won.
cross-border deals totalled US$11.1 billion in 2008 only
experiencing a marginal decline from 2007. Doosan Corp, the flagship unit of the Doosan Group,
chose Lotte Group as the preferred bidder to purchase its
While the value of total deals declined noticeably, the liquor business December 2008. The liquor unit, which
number of transactions maintained an upward trajectory. boasts soju brands such as Cheoum Cheoroem and
Total deal volume increased 49% year-on-year to 1,095 Green, and the wine brand Majuang, is scheduled to be
transactions, and actually increased 72% in the second purchased by Lotte for a price between US$380 million
half of 2008 compared to the first half of the year. and US$480 million in the first quarter of 2009. The sale is
In particular, domestic transactions were up 51% in part of Doosan’s larger strategic plan to focus on heavy
2008, with cross-border deals up 42%. industry, selling off non-essential business units.

As in other countries, deal value was depressed by the

collapse of a number of high profile deals due to concerns
Private Equity
over growth, funding, and valuation. Samsung made a bid Morgan Stanley Private Equity Asia and Shinhan Private
for US NAND flash memory card and drive producer Equity acquired 100% of Norske Skog Korea, the leading
Sandisk in September 2008 which turned hostile before global producer of newsprint, in September. The transaction
ultimately being dropped. After Sandisk’s management was Korea’s largest domestic private equity deal of the year
initially rejected an offer from Samsung, Samsung made its closing at US$830 million.
offer public to Sandisk shareholders offering US$26 per
share (which represented an 80% premium at the time) to MBK Partners completed a cash tender offer for 30.8%
total US$5.9 billion. Ultimately, Samsung withdrew the bid of the shares of HK Mutual Savings Bank in November.
in October over concerns that Sandisk’s risk profile had MBK Partners, along with Hyundai Capital, had already
substantially increased given the slumping IT market. purchased a 64.2% stake in the mutual savings bank in
2007. MBK plans to delist HK Mutual from the KOSDAQ,
Korean conglomerate LG entered into an agreement with which if successful, would mark the first public to private
German solar producer Coenergy Group in September transaction by a Korean private equity fund.
to form a JV that would jointly produce solar batteries.
LG planned to acquire a 75% interest in a solar module Doosan Group sold its packaging unit, Doosan Techpack
plant for roughly US$168 million. After a breakdown in GG, to Korean private equity firm MBK Partners for roughly
negotiations, however, LG stated that it would not go US$270 million in November 2008.
forward with the deal due to uncertainty in global markets.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 35
Outlook the Capital Market Consolidation Act (CMCA) in February
2009 even in the midst of continued volatility in domestic
Korea’s economy is forecast to expand 1.5% in 2009 on and global financial markets. The CMCA, originally passed
the back of decelerating exports and a further deterioration in 2007, will promote a substantial diversification of
in domestic demand. Korea, as one of the most trade financial products available to consumers and, in theory,
dependent countries in Asia, will be particularly hard hit by break down barriers between financial services providers
a slowdown in global demand; exports are forecast to grow such as brokerages, insurance providers, and commercial
around 2% in 2009. In addition, the won is expected to banks. While there is a general consensus for implementing
gradually appreciate against the US dollar in 2009 as the the CMCA, support for substantial deregulation in the
nation’s trade and current account deficits swing into financial sector, particularly to allow the integrated
surplus. A stronger won would hurt Korean goods’ export “investment bank” model, has clearly eroded after the
competitiveness. collapse of several similarly structured institutions in the
US. This perceived policy shift away from promoting
Domestic demand is expected to remain sluggish in 2009 financial liberalisation and towards strengthening risk
as customers and firms retrench. management, will have implications for the government’s
planned privatisation of large domestic financial
Personal consumption is forecast to expand 0.5% in 2009 institutions. Indeed, the privatisation plan of Korea
due to a weak labor market and stagnant wage growth. Development Bank (“KDB”) was originally based on the
Fixed investment is expected to contract 0.5% as firms notion of creating a domestic “investment” bank through
slash capital expenditure budgets due to falling demand a merger with Daewoo Securities. Currently, the
worldwide. This loss in demand may be partially privatisation of KDB is slated before 2012.
compensated for by the Korean government’s planned
33 trillion won (US$22.7 billion) fiscal stimulus package and M&A in the financial sector, however, will still likely pick up
tax cuts to be implemented in 2009. The government also in 2009. Firstly, industry consolidation will continue. While
announced a 43 trillion won (US$32.7 billion) “green” financial firms may hold back from diversifying operations,
program to promote employment in environmentally consolidation between commercial banks and mutual
friendly projects over the next four years. In light of this savings banks is expected to accelerate. Second, some
outlook, the Bank of Korea, which has already undertaken chaebols are selling financial subsidiaries in order to raise
an aggressive monetary easing campaign at the end of cash and reduce their overall risk profile. The Kumho Asiana
2008, is forecast to further reduce interest rates in 2009 group is selling its 69.9% stake in the unlisted life insurer
cutting the base interest rate below 2.0%. Kumho Life to boost overall liquidity after its purchase of
Korea Express in 2007. The Eugene group, an industrial
M&A activity will likely remain depressed in the first quarter chaebol, is selling Eugene Securities in a bid to focus on
of 2009. However, moving forward into the second and its core operating activities.
third quarters of 2009, corporate divestitures, especially
amongst chaebols, may well increase as firms shed Outside of the financial services sector, the government
non-core businesses to boost liquidity and cut operational announced initial privatization plans for roughly 100 firms
costs. Indeed, many chaebols such as Doosan and in September, although the timeline and structure of sale
Hanhwa have announced sales or planned sales of will likely be delayed due to the depressed market.
subsidiaries to focus on core operations. Private equity According to the current government plan, there will be
deals will also likely pick up as distressed firms enter three different “rounds” of privatisation, many of which will
workouts and restructuring. Finally, mid and large sized include previously scheduled sales of domestic enterprises
Korean firms will continue to go abroad in order to diversify such as Hynix Semiconductor, as well as infrastructure
and find new sources of revenue. including the Incheon Airport.

Opportunities will likely exist in the financial services

sector. The Korean government has pledged to implement

Year-end 2008 Asia Pacific M&A Bulletin

36 PricewaterhouseCoopers
Asia Pacific M&A Bulletin Year-end 2008
PricewaterhouseCoopers 37
Year-end 2008 Asia Pacific M&A Bulletin
38 PricewaterhouseCoopers
South and

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 39
Down, but not out

According to the World Investment Report 2008 released

by United Nations Conference on Trade and Development
(“UNCTAD”) in September, India has retained its position
as the second most preferred global location for foreign
investment in 2008. Foreign Direct Investment (“FDI”),
at US$17.2 billion, went up by a staggering 137% in
comparison to the same period the previous year. A large
part of this was directed at greenfield projects in the
Bharti Gupta Ramola telecommunications, construction, and software segments.
Transactions Leader The government expects the year to close with FDI flows
India in excess of US$35 billion.

Deal Activity
Current Environment
The Indian economy grew by a little under 8% p.a. during India Deal Activity

the first half of fiscal 2008/09 (April to September 2008), 35,000

Deal values Deal volume
as compared to the 9.3% p.a. growth registered for the
30,000 400
same period the prior year. This marked the first time in 350
10 quarters that the Indian economy grew at less than 300

No. of deals
US$ million

8% p.a. The key contributors to this drop were the 20,000

agriculture sector, which registered a growth of 2.9% p.a. 15,000 200

compared to 3.7% p.a. in the previous fiscal year, and 10,000 150

manufacturing which grew by 5.3% p.a., significantly lower 5,000

than the 9.7% p.a. in the first half of the previous fiscal
- -
year. The services sector continued to be the main driver 20
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
of growth recording 9.8% p.a. growth; albeit lower than the
10.7% p.a. seen during the same period in the prior year. Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
Growth in the services sector is attributed to the double of 31 December 2008

digit growth of 11% p.a. in the trade, hotels, transport, and

communications segments. The construction sector also 2008 witnessed a significant fall in deal activity, both in
witnessed significant growth at 10.5% p.a. during this value and volume terms, as the impact of economic
period versus 9.7% p.a. during same period last year. slowdown spread across emerging markets. While the
total number of transactions fell slightly from 1,327 in
Inflation peaked at 12% p.a. during the period, primarily 2007 to 1,254 in 2008, aggregate deal value declined by
attributed to the rising crude oil prices, but had declined over 20% from US$61 billion in 2007 to US$47.4 billion in
to approximately 6.4% p.a. by the end of December, with 2008. The average deal size also fell from approximately
a further correction expected in January. The fall in crude US$46 million in 2007 to US$38 million in 2008. This was
oil prices, together with the measures taken by the attributed to fewer large outbound deals in 2008 vis-à-vis
government (primarily raising interest rates and restricting 2007. In addition, extremely high price expectations for the
export of commodities) have helped to lower inflation levels. most part of 2008, combined with a lack of liquidity, made
private equity and outbound transactions tougher in 2008.
The Indian stock markets have been severely impacted Pharmaceuticals, financial services, telecommunications
by the global credit crisis, and saw significant selling and the IT/ITES sectors were the most significant
pressure by foreign funds, causing some panic-selling contributors to deal activity during the year.
by local investors as well. The Bombay Stock Exchange,
which touched a high of 21,700 points in January 2008, Private equity transactions accounted for around
plummeted to below 8,500 in November. It has since US$11 billion of deal activity in 2008. Although a weak
made a partial recovery, but continues to stay range secondary market resulted in some correction of
bound. With foreign institutional investors being net sellers valuations, this was largely restricted to the public
in the Indian equity markets, and the rupee depreciating markets. In the private markets, promoter valuation
by over 25% against the US Dollar during 2008, India’s expectations remained relatively unchanged, and this
foreign exchange reserves fell from approximately resulted in considerably fewer PE deals. As a result,
US$300 billion to US$254 billion by end December 2008. private equity investors appear to have turned their

Year-end 2008 Asia Pacific M&A Bulletin

40 PricewaterhouseCoopers
attention to PIPE deals, where valuations have corrected, As both the equity and debt financing options dried up,
the investee managements are known to them, and outbound acquisitions were adversely hit, despite much
exit routes are visible. ChrysCapital acquired around lower valuations in the Western markets. Volatility in the
a 5% stake in HCL Technologies for approximately foreign exchange rate, the depreciating rupee, rising inflation
US$220 million, and slightly more than 1% in Infosys for and its impact on domestic demand and exports has created
about US$200 million during 2008, through secondary an environment of conservatism, with Indian corporates
market transactions. Some of the notable PE transactions following a ‘wait and watch’ approach at the moment.
during 2008 were: While companies are open to opportunistic purchases,
the outlook for outbound M&A will depend on the impact
• Providence Equity Partners’ investment of that the financial crisis has on the rest of the economy.
US$640 million in Aditya Birla Telecom Ltd, a wireless
telecommunication services provider, for a 20% stake. Domestic deal activity remained more or less stagnant in
2008 compared to previous years. 2008 saw the value of
• Farallon Capital’s investment of around US$246 million domestic deals at US$13.9 billion, spread over 706 deals
in Indiabulls Power Services Ltd. compared to US$14.5 billion spread over 721 deals in
2007. Key domestic deals during 2008 included:
• Government of Singapore Investment Corp’s
(“GIC”) investment of US$209 million in apparel firm, • Tata Consultancy Services’ acquisition of Citigroup
Reid & Taylor India. Global Services Ltd, for an estimated consideration
of US$505 million.
• Goldman Sachs’ investment of US$172.5 million in
Mahindra & Mahindra Ltd. • WNS (Holdings) Ltd’s acquisition of Aviva Global
Services Pvt Ltd, for a consideration of approximately
• International Finance Corporation’s investment of
US$228 million.
US$120 million in Polycab Wires, which is one of India’s
largest cable manufacturing companies. • IDFC’s acquisition of Standard Chartered Mutual Fund,
a financial services provider, for a consideration of
• TPG Capital’s investment of US$120 million in Shriram
US$205 million.
Retail Holdings Pvt. Ltd.
• State Bank of India’s acquisition of a 91% interest in
Outbound investments accounted for US$12.9 billion of
Global Trade Finance Pvt. Ltd., for a consideration of
M&A activity in 2008, spread over 227 deals, representing
around US$132 million.
a fall of over 10% in value terms. Significant outbound
deals, announced during the year include: Inbound transactions also fell. The total value of overall
inbound deals announced during 2008 was US$20.5 billion;
• Tata Motors Limited acquiring Jaguar and Land Rover
a fall of over 35% versus 2007. Similarly, total inbound
of Ford Motor Company for US$2.3 billion.
deals in volume terms declined by 14% from 2007 to
• Great Offshore Limited acquiring Seadragon Offshore 2008. Some key strategic inbound deals announced
Limited for US$1.4 billion. during 2008 were:

• GMR Infrastructure Limited acquiring a 50% stake in • Daiichi Sankyo’s acquisition of a 63.2% stake in
InterGen NV for US$1.1 billion. Ranbaxy Laboratories, for a consideration of
approximately US$5.1 billion.
• Tata Chemicals Limited acquiring General Chemical
Industrial Products Inc for approximately US$1.1 billion. • NTT DoCoMo Inc.’s acquisition of a 26% stake in
Tata Teleservices for a consideration of approximately
• Suzlon Energy Limited acquiring a 30% stake in US$2.6 billion.
Repower Systems AG for US$546 million.
• Telenor ASA’s proposal to acquire a 60% stake in
• RFCL Limited, a subsidiary of ICICI Ventures, Unitech Ltd’s telecoms arm for around US$1.2 billion.
acquiring Mallinckrodt Baker for US$340 million.
• CRH Plc’s acquisition of a 50% stake in My Home
• Siva Ventures Limited acquiring JB Ugland Shipping Industries Ltd, for a consideration of US$452 million.
A/S for US$300 million.
• Lafarge SA announced the acquisition of the ready mix
• Jubilant Organosys Limited acquiring Draxis Health Inc concrete business of Larsen and Toubro (L&T) for
for US$255 million. approximately US$350 million.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 41
Outlook While outbound M&A is likely to be challenging in the first
half of 2009, private equity investments are expected to
There is definite slowdown in economic activity which pick up from the second quarter, though deal activity may
is expected to continue into the first half of 2009. actually be more visible in the second half of 2009.
The Reserve Bank of India (“RBI”) has forecast GDP PE investors continue to wait for promoter expectations
growth for the current fiscal year ending March at 7.5% to moderate. Sectors expected to see particular activity
to 8.0%; some analysts place this lower. The government this year include education, healthcare, and infrastructure.
has been working on the twin tasks of controlling inflation Domestic M&A activity is also expected to pick up,
(in which it has met with fair amount of success) and also as businesses try to consolidate operations, and exit
ensuring a step up in demand, to boost growth in the operations which are not adequately profitable. Inbound
economy. As a result, it has recently announced measures transactions will possibly comprise a very significant
to provide growth stimulus to the economy, and has also component of the M&A activity for the year, as overseas
attempted to ease financing options for Indian corporates. investors continue to be excited about the large domestic
In addition, RBI has eased a number of regulations, which market, and the cost arbitrage opportunities available in
include reducing lending rates, advancing more credit to a number of sectors, in particular IT and pharmaceutical
productive sectors, special treatment for commercial real R&D. This is likely to be aided by “realistic” valuations in
estate exposure, and encouraging banks to consider the Indian market.
applications for the buyback of foreign currency
convertible bonds.

Year-end 2008 Asia Pacific M&A Bulletin

42 PricewaterhouseCoopers
Asia Pacific M&A Bulletin Year-end 2008
PricewaterhouseCoopers 43
Indonesian M&A activity is expected to continue to slow down amid the global
financial crisis and the upcoming parliamentary and presidential elections

The government has also introduced regulations restricting

speculative conversion of the currency. Purchases of
foreign currency have been limited to US$100,000 per
customer per month, unless a substantive underlying
transaction can be proved. To help stimulate trading on the
stock market, the government is encouraging state-owned
companies to buy back shares.

Mirza Diran
Transactions Leader Deal Activity
Indonesia Deal Activity
Deal values Deal volume

Current Environment
120,000 100
100,000 80
The global economic slowdown affecting developed 70
countries started to impact the Indonesian economy in the

No. of deals
US$ million


second half of 2008. Indonesia’s real GDP grew by 6.1% 60,000 50

year on year in the third quarter, the slowest pace of 40,000
expansion since the first quarter of 2007. 20
Global sentiment has made foreign investors, who -
7 7 7 7 8 8 8 8
00 00 00 00 00 00 00 00
provided much of the liquidity for Indonesia’s investment 1Q

boom in 2007, risk averse. The outbreak of the global

crisis has prompted investors to move their portfolios Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
of 31 December 2008
out of Indonesia, setting off a wave of capital outflows.
This behavior has triggered a weakening in the Rupiah Despite the slowing economy, deal activity has remained
and a collapse in the Indonesian stock market. relatively buoyant, although the average deal size has
declined substantially. During the second half of 2008,
Starting in October 2008, the Indonesian Rupiah exchange
there were 161 deals announced with a total estimated
rate underwent significant depreciation. The Rupiah
value of US$4.9 billion, compared to 100 deals announced
depreciated by approximately 20% from Rp9,272/US$1
with a value of US$12.3 billion in the first half, and 73 deals
at the end of June 2008 to Rp10,950/US$1 in December.
with a value of US$4.1 billion in the second half of 2007.
The Indonesian stock exchange index also significantly
weakened during the second half of 2008. The stock Financial Services
exchange index decreased by approximately 40%,
from 2,300 in June to approximately 1,300 in December. In the first half of the year, Malayan Banking Bhd
The exchange was even closed for a few days in October (“Maybank”) announced that it would acquire a 55.7% stake
to avert panic selling by investors. in Bank Internasional Indonesia (“BII”), one of the largest
banks in Indonesia. Later in the year, Maybank agreed to
Several measures have been taken by the government of expand its shareholding by 16.2% for US$190.9 million.
Indonesia to influence the Rupiah exchange rate, the stock
market index and the economy as a whole. In December, Maybank put in a tender offer to purchase
minority shareholders’ shares. As a result, Maybank now
Effective October 2008, the government increased the effectively holds approximately 97% of the equity interest in
maximum deposit amount guaranteed by the Deposit BII. Following the acquisition and the completion of the
Insurance Corporation from Rp100 million to Rp2 billion for tender offer process, the new shareholders plan further
every bank customer. By increasing the guaranteed limit, corporate action by studying a possible merger with the
the government expects that it will assuage depositor subsidiary company in Indonesia, Maybank Indocorp.
worries about bank failures, thus reducing capital flight and
negative pressure on the exchange rate.

Year-end 2008 Asia Pacific M&A Bulletin

44 PricewaterhouseCoopers
Malaysia’s Commerce International Merchant Bankers Sdn Consumer and Industrial
Bhd (“CIMB”) completed the merger of its subsidiary CIMG
The South Korean hypermarket giant Lotte Group
Niaga Bank with Lippo Bank after acquiring 51% of the
announced that it will buy a 55% stake in PT Makro
Lippo Bank’s stake from Santubang Investments BV. CIMB
Indonesia (“Makro”) for US$146.8 million. Makro operates
Group now holds a controlling share ownership of 77.8%
19 wholesale outlets in Java, Bali, Sumatra, Kalimantan,
of Bank CIMB Niaga. This was the first banking merger
and Sulawesi and serves around 500,000 customers.
under the government’s single presence policy. The policy
Lotte Group is the second foreign retailer to enter
prohibits shareholders from having controlling stakes in
Indonesia, after PT Carrefour Indonesia. The Government
more than one bank. The controlling shareholder must
allows foreign companies to control 100% of the shares in
either divest their stakes, merge the banks into a single
hypermarkets or supermarkets with shopping area size of
entity, or establish a bank-holding company.
more than 1,200 square meters and in department stores
CIMB Niaga Bank is now the nation’s sixth largest bank with shopping area size of more than 2,000 square meters.
by assets. The merger results in a bank with Rp100 trillion
In another tender offer in Indonesia, PT Bogamulia Nagadi,
(US$1 billion) of assets, serving customers through
the majority shareholders of PT Tempo Scan Pacific Tbk,
650 branches, run by almost 11,000 employees in
a listed Indonesian pharmaceutical company, are offering
approximately 120 Indonesian cities. After the merger,
to buy 1.04 billion shares, equivalent to a 23.2% stake in
Lippo Bank shares were delisted from the Indonesian
the company held by the investing public.
Stock Exchange.

United Overseas Bank (“UOB”) Ltd of Singapore completed

a tender offer for the shares of PT UOB Buana, buying Outlook
37.9% of Buana’s shares from the public for approximately
US$346 million. This took its ownership of Buana to 99%, The Economist Intelligence Unit (“EIU”) forecasts that
and it will now propose delisting Buana from the Indonesian annual average GDP growth will decrease to 3.5% in 2009,
Stock Exchange. the economy’s slowest rate of growth since 1999. The EIU
also estimates that growth will be barely higher in 2010
Woori Investment & Securities Co. (“Woori”), the brokerage (averaging 3.6% that year). The slowdown in 2009-2010
unit of South Korea’s top financial services group bought is due to the global crisis which has resulted in decreased
a controlling (60%) stake in an Indonesian securities firm, external demand. Although imports are likely to slow
PT Clemont Securities Indonesia. The acquired company significantly, exporters are also likely to struggle, resulting
will be renamed PT Woori Korindo Securities Indonesia. in a negligible contribution to growth from net exports
The acquisition is a result of Woori’s strategy to expand into
investment banking and securities operations in Indonesia. Consumer price inflation is expected to average 6.1%
a year during 2009-2013. The rate of price increases
will be slow between 2009 and 2013 as upward pressure
Energy and Mining on wages remains weak (owing to high levels of
Kalimantan Gold Corporation Ltd (“Kalimantan Gold”) unemployment) and as global commodity prices stabilise.
completed the acquisition of a 25% interest in Kalimantan
M&A activity is predicted to slow down due to the global
Surya Kencana Contract of Work (“KSK COW”). Kalimantan
financial crisis and the upcoming parliamentary and
Gold already owned the remaining 75% interest through
presidential elections in 2009, with most investors
its wholly owned subsidiary, Indokal Limited. KSK COW
expected to take a “wait and see” position due to the
holds a mining licence covering a total area of 941 square
uncertain situation.
km, which comprises a total of 38 mineral prospects
located in Central Kalimantan, Indonesia. Of the 38,
Kalimantan Gold has identified several which it considers
as having the potential to host world class copper-gold
porphyry deposits.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 45
Overall domestic and inbound deal activity has declined, although outbound
activity remains buoyant. Prospects for 2009 are cautiously optimistic

weather the current financial turmoil with Malaysia’s

substantial foreign reserves amounting to US$93 billion as
at 15 December, which is sufficient to finance 7.8 months
of retained imports and 3.4 times current short term debt.

In politics, Malaysia’s Deputy Prime Minster, Datuk Seri Najib

Razak is expected to replace Datuk Seri Abdullah Badawi as
the next Prime Minister in March 2009. The proposed timeline
is intended to pave the way for a smooth transition of leaders.
Paran Puvanesan
Corporate Finance Leader
Deal Activity

Current Environment Malaysia Deal Activity

Deal values Deal volume
16,000 300
After registering a strong rate of growth of 7.1% in the first
half of 2008, Malaysia’s economy is expected to have 250
expanded at a slower rate in the second half, in light of the 200

No. of deals
US$ million

global financial crisis and a slowdown in the manufacturing,

8,000 150
export and tourism sectors. Latest figures for third quarter
growth were 4.7% p.a., while full year growth is estimated 100
to have been 5.0%. 50

Despite the global financial crisis, domestic demand is -

7 7 7 7 8 8 8 8
200 200 200 200 200 200 200 200
projected to continue to grow, with contributions mainly 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

from the services sector, private and public consumption

Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
and investment. The government’s additional US$2.0 billion of 31 December 2008
stimulus package is expected to boost consumer spending
and drive economic activity in the construction and Compared to 2007, the value of deals in Malaysia halved in
property sectors. 2008 to US$20.4 billion, largely due to the absence of large
deals greater than US$1 billion. Four such mega deals
Malaysia recorded encouraging foreign direct investments, occurred in 2007 accounting for US$13.0 billion in deal
with approved foreign investments in the first three quarters value. However, the decline in deal volume in 2008 was less
of 2008 totalling US$11.3 billion, exceeding FDI for the significant with only a 5% drop. The global financial crisis
whole of 2007 of US$9.7 billion. The basic metals, electrical has lowered M&A deal expectations with corporates taking
and electronics, and chemicals sectors were among the top a cautious stance on both the market outlook and cash
three investment categories during this period. conservation. In this challenging environment several major
deals were aborted, including:
Inflation in 2008 reached a peak of 8.4% p.a. in August
at the height of the oil and commodity prices boom. It is • MISC, the national shipping company aborted its
anticipated to slide to between 3.5% p.a. and 4.5% p.a. reverse takeover (US$907 million) of oil services firm
in the fourth quarter of the year, with petrol prices reverting Ramunia Holdings
back to US$0.51 per litre from a high of US$0.79 per litre.
• IOI Corporation, a leading plantation and oleochemical
Malaysia’s stock market performance was weak mirroring the producer called off its offer to acquire a prime location
impact of the global financial crisis on international markets. office in Kuala Lumpur for US$166 million
The KLCI index reached a peak of 1,249 points in January
but at the height of the crisis fell to a low of 829 points in • Mulpha International terminated its proposed acquisition
October 2008. The market has subsequently recovered to of a Chinese coal company, Winfame International, for
trade between 850 to 890 points in December 2008. US$129 million

The local currency, the Ringgit, also experienced high Despite the significant drop in M&A value in 2008,
volatility. It hit a peak of RM3.13/US Dollar in April 2008 Malaysian companies are investing more overseas, with the
before reaching a low of RM3.62 in November due to lower value of outbound deals doubling in 2008 to US$13.7 billion
investment confidence in Asian economies and currencies. and even surpassing the combined value of domestic and
The Ringgit is currently trading at 3.45 and is expected to inbound (US$6.7 billion).

Year-end 2008 Asia Pacific M&A Bulletin

46 PricewaterhouseCoopers
Key sectors targeted for outbound M&A include oil and gas, • Kuwait Finance House planning to acquire an
telecommunications, banking, and power led by leading office building in Kuala Lumpur (Menara YNH) for
local companies such as Petronas, TM International, US$281 million
Maybank, CIMB and YTL Corporation
• Singapore-based CapitaLand acquired a major retail
• Petronas, the national oil and gas company, is acquiring centre in Kuala Lumpur (Sungei Wang Plaza) for
a LNG project in Australia and an oil and gas exploration US$185 million
project in India for a combined US$3.1 billion
• Abu Dhabi-Kuwait-Malaysia Investment Corp buying
• TM International, a division of the national a stake in UBG Bhd, a property holding company, for
telecommunication company, Telekom Malaysia, US$141 million
has acquired a 15% stake in India’s Idea Cellular Ltd
for US$1.7 billion and an additional 17% stake in Besides property, other notable M&A sectors in 2008
Indonesia’s PT Excelcomindo Pratama for US$440 million, included industrial products, healthcare, marine
raising its stake to 84% transportation, manufacturing, and building materials.

• Maybank, Malaysia’s largest bank, is spending a total

of US$3.6 billion to acquire stakes in three banks: Bank
Internasional Indonesia, Pakistan’s MCB Bank Ltd, and Outlook
Vietnam’s An Binh Rural Joint-Stock Commercial Bank As with the rest of the world, the volatile and uncertain
financial environment globally will impact Malaysian M&A
• CIMB, the country’s second largest bank, is acquiring
into the next few years. Economic growth in 2009 is likely
BankThai and stakes in China’s Bank of Yingkou Co Ltd
to be weaker than 2008, with EIU forecasting growth of
for US$469 million
3.1%. Weak equity market conditions should, however,
• YTL Corp through its subsidiary YTL Power see the continued trend of companies being taken private
International is purchasing Singapore’s second during 2009.
biggest power producer, PowerSeraya Ltd, for
With difficult external conditions, we expect Government
US$2.6 billion. YTL Corp also took control of
policy to focus on enhancing Malaysia’s economic
Singapore’s Macquarie Prime REIT and its
resilience, and improving the competitiveness of Malaysian
management company for US$195 million
industries, via fiscal reforms and stimulus across economic
Domestic M&A was relatively quiet in 2008, with the few sectors including services, manufacturing, agriculture and
major M&A deals mainly involving group restructurings utilities. This will present M&A opportunities.
and public to private initiatives to take advantage of low
Already, mobile carrier TM International Bhd (TMI) is reviewing
market valuations and the low cost of borrowing. The key
all its assets, particularly non-mobile units, and intends to
deals included:
dispose of those that are not viable for the long term.
• TuneAir intends to take low cost carrier AirAsia private
Meanwhile, with Asia’s longer term growth trend intact,
for US$1.6 billion
private equity funds like Navis, Actis, and Standard
• A restructuring of UEM Group involving public to private Chartered Private Equity continue to seek investment
deals for both UEM Builders, a construction company, opportunities in the region. In fact, with lower valuations
and Cement Industry of Malaysia and favorable exchange rates, cash-rich Malaysian
corporates are even seeking deals in Australia and to
• MMC Corp to acquire Senai Airport Terminal Services, some extent, Europe.
an aviation service provider, from a company related to
its shareholder, Tan Sri Syed Mokhtar Al-Bukhary for Despite the global financial turmoil, Malaysia is viewed
US$582 million as not just having attractive valuations but strong and
sustainable long-term growth prospects. In particular, we
Property deals continued to remain significant with a expect continued active interest by Middle Eastern and
number of foreign acquirers, although the bulk of them Japanese funds who are seeking long-term investment
were announced in the first half of the year. Some of the prospects in Malaysia. Overall therefore, the outlook for
key property deals were: Malaysian M&A appears cautiously optimistic.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 47
Economic growth has remained relatively strong, and transaction volumes
have held up despite a decline in overall deal value. The energy sector should
continue to provide deal activity in 2009

A November survey conducted by the Business Processing

Association of the Philippines (BPAP) resulted in two-thirds
of respondents reporting at least a neutral if not positive
effect of the US financial crisis on their operations.
The industry continues to develop more BPO sites,
attract more foreign investors, and hire more workers.

Foreign exchange remittances from overseas Filipino

workers continue to buoy the local economy. The Central
Mary Jade T. Roxas-Divinagracia Bank reported robust growth amid worsening global
Transactions Leader
economic conditions. Inflows for the first ten months of
2008 grew 15.5% from the same period last year to
US$13.71 billion.

The Philippine Stock Exchange (PSE) tracked global

Current Environment exchanges and closed at 1,873 on 31 December 2008,
GDP growth in the Philippines is expected to have been a decrease of 48% from the 31st December 2007
positive at 4.4% for 2008. Downward revisions from close of 3,622. The Philippine Peso/US Dollar foreign
projections as high as 6.2%, are a direct result of the exchange rate was at Php47.49/US$ on 31 December
difficult external environment in the second half of the year. 2008, a depreciation of 15% from last year’s end close
of Php41.28/US$.
Philippine exports have been hit by the global downturn.
Electronic goods exports specifically, which comprise Listing activity dried up for 2008 as companies continued
approximately 60% of export earnings, shrank 18.9% in to hold out for better prospects. All listing activity took
October. Some segments of the service sector of the place in the first half of the year as San Miguel Brewery,
economy have also been affected. Contraction took Inc. and Pepsi-Cola Products Philippines, Inc. listed on the
place within the transportation, financial services, and exchange, while Sultan Mining and Energy Development
trade services sectors during the third quarter of 2008. Corporation and Viva Communications, Inc. applied to list.
The slowdown in these sectors was mitigated by increased
construction spending. This took the form of increases in
spending for government priority infrastructure projects
and private residential construction.
Deal Activity
Philippines Deal Activity
Inflation levels have eased since reaching a peak of Deal values Deal volume
12.5% p.a. in August. Decreasing food and oil prices have 7,000 60
contributed to inflation declining to 9.9% p.a. in November 6,000
and further to 8% p.a. in December. Average annual 5,000
inflation for 2008 is estimated to have been 9.3% 40
No. of deals
US$ million

compared to 2.8% in 2007. 30

Foreign Direct Investment (FDI) flows contracted for the 2,000


first nine months of 2008. Despite strong inflows in the final 1,000 10
month of September, January to September net flow totals - -
amounted to $1.4 billion, 45% less than the $2.5 billion net 20
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
inflows recorded last year.
Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
The government’s planned response to the global of 31 December 2008

downturn includes increased infrastructure spending,

financed by government borrowing. The budget deficit Total transaction value shrank to just US$5.6 billion for the
goal for 2009 has been increased to 1.2% of GDP, whole of 2008, as opposed to US$11.5 billion for the whole
as opposed to the original ceiling of 0.5%. of 2007. The total number of deals fell slightly from 188 for
the whole of 2007 to 176 for the whole of 2008. Domestic
A bright spot of the local service economy remains and outbound deal activities led the decline, but were
the Business Process Outsourcing (“BPO”) industry. offset by a slight increase in inbound deal activity.

Year-end 2008 Asia Pacific M&A Bulletin

48 PricewaterhouseCoopers
Government Divestment of Power Assets In October Sea Refinery Holdings BV, a unit of Ashmore
Investment Management Ltd acquired a further
The national government has been exiting the power sector
40% stake in Petron Corporation from Philippine state-
via its policy of privatisation of generation assets and
owned Philippine National Oil Co for Php25.7 billion
through divestment of its ownership in private distribution
(US$544.2 million). In a separate transaction in June,
companies. Concurrent with the government’s divestment
Sea Refinery had previously acquired a 10.6% stake in
efforts, large private holding companies are seeking to
Petron for Php6.5 billion (US$146.6 million).
diversify their business by entering into this sector.
In December, San Miguel Corporation agreed to acquire
The Aboitiz Group has been involved in the largest deals
Sea Refinery’s entire 50.6% interest in Petron Corporation
for acquiring government power assets, increasing its
for Php32.5 billion pesos (US$669.6 million).
footprint into power generation while moving away from its
transportation services business.
• Aboitiz Power Corporation acquired the Tiwi-Makban
Philex Mining Corp acquired Anglo American Exploration
Geothermal Power Plants from the Philippine state-
(Philippines) BV, a gold mining company, from Anglo
owned Power Sector Assets & Liabilities Management
American PLC, for Php2.5 billion (US$55 million), while
Corporation as a result of the latter’s mandate to
First Pacific Co Ltd agreed to acquire a 20.1% stake in
privatise government power assets. These two
Philex Mining for Php6.2 billion (US$124.1 million).
geothermal plants had a combined value of
Php19.7 billion (US$447 million).
Other Significant Deals
• SN Aboitiz Power acquired the Ambuklao-Binga
Hydropower Plant for Php14.8 billion (US$235 million). Metro Pacific Investments Corp acquired a 98.1% interest
in First Philippine Infrastructure Inc, a toll road services
• KGLI-NM Holdings agreed to acquire a 49% stake in provider, from First Philippine Holdings Corp and Benpres
Aboitiz Transport System Corp for Php1.8 billion Holdings Corp for Php12.3 billion (US$280.6 million).
(US$47.3 million).
EHS Acquisition Co LLC, a special purpose acquisition
• In 2007, San Miguel Corporation divested large portions vehicle formed by Ayala Corp, launched a tender offer
of its overseas drinks and beverage business in order to acquire eTelecare Global Solutions Ltd, a call center
to generate funds to enter into the power sector and services provider, for Php13.7 billion (US$292.0 million).
other utilities.
EGCO International Ltd acquired a 90% interest in electric
• San Miguel Corporation agreed to acquire a 27% utility company GPI Quezon Ltd for Php6.1 billion
stake in the Manila Electric Company (Meralco), (US$124.2 million ).
an electricity utility company, from Philippine state-
owned Government Service Insurance System (GSIS), SM Prime Holdings Inc acquired the entire share capital of
for Php27.1 billion (US$552.8 million). Mega Make Enterprises Ltd, a shopping malls owner and
operator, from Oriental Land Development Ltd, in exchange
for the issuance of 372.5 million new ordinary shares
Ashmore Investment Management Ltd valued at HK$661.9 million (US$85.1 million).
& Petron Corporation
In March, Ashmore Global Special Situations Fund 4
Ltd Partnership, a unit of Ashmore Investment
Management Ltd, acquired a 40% stake in Petron Corp
(PC), a petroleum products refiner, wholesaler and retailer,
from Aramco Overseas Co BV for Php22.8 billion
(US$550 million).

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 49
Outlook • Structures, Plant Equipment, Auxiliaries and
Accessories of the 54 MW Cebu Diesel Power Plant
IPO activity will be dependent on the state of confidence
in the local equities market, as many firms are uncertain • 100 MW Power Barge 118 in Compostela Valley
as to whether the market has stabilised. Most firms who
listed in 2007 have stocks trading below the original listing • 100 MW Power Barge 117 in Agusan del Norte
price. No firms have announced IPOs to take place in
Deadlines for final bid submissions fall in January and
2009. To stimulate activity in the equities market, the
February 2009.
Philippine Stock Exchange is considering a proposal
to give corporations who list the ability to benefit from Activity in the alternative energy sector is expected to
income tax rates below current levels. Such a proposal ramp up in 2009 as a result of the passage of the
is at the preliminary stage however, and would have to Renewable Energy Act. The Senate ratified the act in
attract support from legislators and the government; October and it was signed into law in December.
this appears unlikely at this stage.
The legislation provides incentives for developers of
Privatisation of power generation assets by the state- alternative energy. This includes a seven year income
owned Power Sector Assets & Liabilities Management tax holiday for renewable energy developers, and a 10%
Corporation will continue through early 2009. Due- corporate income tax, as opposed to the standard 30%
diligence and pre bid conference stages have begun for rate, once the income tax holiday expires. Further tax
the following power assets: incentives granted are exemptions from carbon credits
generated from renewable energy projects, a 1.5% realty
• 700 MW Contracted Capacity of Pagbilao Coal Fired
tax cap on energy infrastructure, and import duty
Thermal Power Plant
exemption for equipment and material used for renewable
• 1000 MW Contracted Capacity of Sual Coal Fired energy purposes. These measures are expected to
Thermal Power Plant generate significant investor interest in the sector,
although this may be offset to some extent by recent
• Structures, Plant Equipment, Auxiliaries and declines in energy prices.
Accessories of the 225 MW Bataan Thermal
Power Plant

Year-end 2008 Asia Pacific M&A Bulletin

50 PricewaterhouseCoopers
Asia Pacific M&A Bulletin Year-end 2008
PricewaterhouseCoopers 51
Singapore’s exposure to the global economy has led to declines in both
economic growth and M&A. Lower valuations and distressed companies
could provide M&A opportunities in 2009

As stock markets around the world crashed in the aftermath

of Lehman’s collapse, the benchmark STI fell 1,600 points
in October to its lowest level in more than five years. It has
since improved slightly to 1,762 points by December.

Deal Activity
Chao Choon Ong Singapore Deal Activity
Transactions Leader Deal values Deal volume

Singapore & Asia Pacific 25,000 250

20,000 200

No. of deals
US$ million

15,000 150

Current Environment 10,000 100

The Singapore economy grew by 1.2% in 2008, down

5,000 50
from 7.7% in 2007. Its heavy reliance on the export
markets of the US and Europe meant that it was one of - -
7 7 7 7 8 8 8 8
00 00 00 00 00 00 00 00
the first Asian economies to slide into a recession in the 1Q

third quarter of 2008, following two consecutive quarters

of economic contraction. Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
of 31 December 2008

The manufacturing sector, which accounts for about 25%

of Singapore’s economy, experienced the largest decline The M&A market still performed strongly in the first quarter
with a 4.1% contraction. The service sector contracted in of 2008, when the total deal value was 21% higher than
the second half of 2008, as financial services, transport that in the same period of 2007. M&A activity slowed down
and tourism experienced a slump. In line with the after the first quarter. The US credit crunch and the
contraction of the manufacturing sector, non-oil exports expectation of a global recession took their toll on M&A.
plunged, particularly to the key markets of the US, Europe Buyout and private deals in particular, virtually ceased as
and China. a result of the credit freeze and volatile stock market post
Lehman’s collapse. Total deal value in the last three
The CPI reached a historic high of 7.5% in the second quarters of 2008 fell by 57% from the same period in 2007.
quarter, as oil, rice and commodity prices skyrocketed.
However by the third quarter, inflation was less of a Total value of deals in 2008 was US$44.9 billion,
concern as the economy slowed and global oil and representing a 35% drop from 2007. While the amount
commodity prices retreated. The CPI is expected to be invested in Singapore by foreign investors has increased,
around 6% – 7% for 2008, which is still high compared there was a significant fall in the amount invested by
to 2007, but is expected to fall to 1% – 2% in 2009. Singapore investors in domestic and foreign companies.
Deals announced in 2008 were fewer, and, on average,
The appreciation of the Singapore dollar against the US smaller than in 2007. The number of deals shrank from
dollar in the first half of 2008 was reversed in July, when 826 in 2007 to 674 in 2008 and the average deal size
the US dollar started to rise as a result of repatriation of decreased from US$83 million in 2007 to US$67 million in
funds back to US. The Singapore dollar reached its lowest 2008. In 2008, the top 10 deals contributed to just over
level of S$1.53 against the US dollar in November. Since half of the total deal value, most notable of which was the
then, the Singapore dollar recovered slightly to an average purchase of a 4% stake in Citigroup for US$6.9 billion by
level of S$1.48 against the US dollar in December. Given the Government of Singapore Investment Corporation
the easing of inflationary pressures, the Monetary Authority (GIC) and Temasek Holdings’ sale of its three power
of Singapore (“MAS”) shifted its foreign exchange rate generating companies in Singapore.
policy from a modest and gradual appreciation of the
Singapore dollar against a trade-weighted basket of foreign Several big deals were also withdrawn this year, including
currencies to a zero percent appreciation, in order to F&N cancelling its sale of Times Publishing, its print and
maintain export competitiveness. publishing business, SNF Corp Ltd’s US$366 million offer

Year-end 2008 Asia Pacific M&A Bulletin

52 PricewaterhouseCoopers
for a reverse takeover of Healthway Medical Services, Other notable transactions include Showy International
Albedo Ltd’s offer of US$152 million for HealthTrends Ltd’s US$485 million reverse takeover of Fortune Court
Medical Investment, a Singapore-based owner of medical Holdings Ltd, owner of a real estate development company
clinics, as well as Auston International Group’s proposed in Chongqing, China, and UOB’s purchase of a further
acquisition of Singapore-based M2b World Asia Pacific for stake in Bank UOB Buana for US$450 million.
US$107 million.
The domestic M&A scene generated a total deal value
Total inbound deal value of US$18.1 billion represented of US$9.6 billion, which is 21% lower than in 2007.
an increase of 71% from 2007, although this was driven The property sector contributed to the bulk of the total
by Temasek Holdings’ sale of its three power generating deal value, with significant deals including:
• Tecity Group’s acquisition of a further 67% interest in
• Tuas Power Ltd, the first to be auctioned, was acquired Straits Trading, a Singapore-based tin metal and
by SinoSing Power Ltd, a wholly-owned unit of Chinese tin-based products manufacturer with hotel and
state-owned Huaneng Group for US$3.1 billion property operations, for a total of US$1.0 billion,
thereby raising its interest to 89%
• Senoko Power Ltd, Singapore’s biggest power
generating company, was sold to Lion Power Holdings • CapitaCommercial Trust exercised its option to acquire
Ltd, a French/Japanese consortium led by Japanese the 1 George Street Building, an office building owner
trading house Marubeni for US$2.8 billion. and operator, from George Street Pte Ltd, a wholly-
owned unit of CapitaLand Ltd for US$845 million
• YHL Power International Bhd paid US$2.4 billion for
PowerSeraya Ltd, after the auction was cancelled due • CapitaLand increased its stake in Ascott Group Ltd,
to poor market conditions the world’s largest serviced apartment operator outside
of the US, from 67% to 98% for US$623 million.
Separately, Mapletree Investments entered into a joint CapitaLand took Ascott Group private after the
venture with Arcapita Bank to form a private real estate transaction was completed
company which would hold the US$1.3 billion portfolio of
high-rise, ready-built industrial properties acquired from • Singapore Airport Terminal Services (SATS) announced
JTC Corporation, Singapore’s largest developer of the acquisition of Singapore Food Industries (SFI),
industrial properties. valuing the company at US$323 million

Outbound Private Equity

The value of outbound investments was US$17.2 billion in The value of private equity-linked deals in 2008 amounted
2008, down by 63% from a year ago. This was largely to US$1.2 billion, a significant fall from the total investment
driven by GIC whose total deal value amounted to of US$5.3 billion in 2007. As credit became increasingly
US$11.5 billion, or 67% of the total outbound investments. difficult to obtain to finance buyout transactions, and a
Some of GIC’s major transactions were: valuation gap developed as the global economic outlook
deteriorated, private equity deals slowed and came to a
• The acquisition of preferred shares convertible into an standstill as credit froze and stock markets nosedived in
estimated 4% stake in Citigroup for US$6.9 billion the fourth quarter. The exit environment also deteriorated
significantly as Singapore witnessed a dearth of private
• A planned acquisition of a 14% stake in infrastructure equity-backed IPOs.
holding company, Sintonia, for US$1.5 billion
Some of the notable PE deals in 2008 included:
• The acquisition of ProLogis’ property fund interests
in Japan and as well as its China operations for • Kohlberg Kravis Roberts’ (“KKR”) general offer for
US$1.3 billion Unisteel Technology, a Singapore-listed engineering
solutions company, for US$575 million.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 53
• MBK Partners’ offer of US$253 million to purchase In addition, this year’s Singapore budget sees further
Asiapharm Group Ltd, a Singapore-listed liberalisation of incentives for both foreign and approved
pharmaceutical group Singapore-resident funds, and more favourable rules for
use of tax losses on acquisition:
• 98 Holdings, whose major shareholders include General
Enterprise Management Services Limited (“GEMS”) and • Funds constituted as limited partnerships (LPs) will be
Standard Chartered Private Equity, made an offer to entitled to tax exemption under Singapore’s tax incentive
increase its stake in NatSteel Ltd from 51% to 81% for regime without the need to restructure their operations
US$119 million into a ‘corporate’ or a ‘trust’. This should encourage
relocation of senior decision-making staff to Singapore.

Outlook • Approved Singapore-resident funds have been given

partial relief on the GST incurred on ‘prescribed
The IMF has forecast that advanced economies will expenses’. This should encourage funds to use
register negative growth in 2009. As Singapore’s economy Singapore platforms for their investments, and avail
is closely intertwined with the global economy, a themselves to Singapore’s wide treaty network.
prolonged global recession is expected to delay the
recovery of the economy. The Ministry of Trade and • Certain restrictions will be lifted to allow Singapore
Industry projects that Singapore’s economy will grow companies to invest in funds managed by Singapore
between -5 and -2% in 2009. based fund managers without being penalised. This
widens the pool of money that Singapore based fund
The Singapore government took decisive steps to cushion managers can tap on.
the impact of the recession by dipping into its sizable
reserves to the tune of S$4.9 billion in its 2009 budget, • A new framework will be released to provide greater
designed largely to preserve jobs and keep businesses clarity and minimise tax consequences of amalgamating
afloat. At 8% of GDP, Singapore’s package is significant companies with tax losses. This would have positive
compared to other countries such as the US, Germany valuation impact on some distressed assets.
and Taiwan which have announced fiscal packages or
stimulus plans. The budget includes a Resilience Package The Singapore M&A sector is still expected to be slow in
of S$20.5 billion, of which S$4.5 billion finances the Jobs the first half of 2009 as the stock markets and bank credit
Credit Scheme, which gives employers a 12% cash grant will take some months to stabilise. From the second
on the first S$2,500 of wages for employees, thus quarter onwards, we expect an increasing number of
reducing business costs. Another notable measure is the stressed and distressed companies putting up assets for
Special Risk-Sharing Initiative through which the sale. We also expect Temasek, GIC and cash-rich
government will set aside S$5.8 billion to stimulate bank Singapore corporates to make overseas forays in the
lending to businesses. Other measures include easing second half, as they did in past regional recessions.
business cash flow by reducing the tax burden, supporting
families and communities and expanding infrastructure
spending, particularly on healthcare and education.

Year-end 2008 Asia Pacific M&A Bulletin

54 PricewaterhouseCoopers
Asia Pacific M&A Bulletin Year-end 2008
PricewaterhouseCoopers 55
Civil unrest and uncertainty dampened M&A activity in 2008;
there is cautious optimism for 2009

attributed mainly to ASEAN and new markets, 2009 is likely

to see exports fall as the global economy slows sharply.

The Stock Exchange of Thailand (SET) saw a steady decline

in 2008, losing around 50% of its value during the course of
the year. Although confidence was at a high at the
beginning of the year, with the SET standing at just under
800 points, renewed political unrest, compounded by the
global financial crisis, became a drag on the index, which
Gary Murphy plunged to below 400 points in November. Although the
Deals Leader
market recovered slightly following the formation of a new
SEAPEN* Region
coalition government in mid-December, it is unlikely that
any significant improvements will be seen until the second
half of 2009. Meanwhile, the risk of further political protests
is still present.
Current Environment Foreign direct investment was sluggish in 2008. While
2008 was an uneasy year for the Thai economy. Despite Board of Investment (BOI) applications between January
a hopeful beginning, with an elected government replacing and November increased by 2.2% compared to 2007,
a military-installed interim administration in January, in value terms they decreased by 38% to THB290 billion
political divisions once again emerged to weaken an (US$8.3 billion). Applications were concentrated in the
economy already battered by a worsening global industrial metals and transport equipment sectors, and
recession. mostly originated from Japan, Europe and ASEAN.

The second half of 2008 saw continued street protests After appreciating strongly in 2007 and the first few months
disrupting the ability to govern. In late August, protestors of 2008, the Thai baht began depreciating heavily against
began a weeks-long siege at the Government House and, the US dollar later in 2008 – the result of a growing trade
ultimately, the new Bangkok international airport, leaving deficit and the outflow of foreign capital. However, the third
hundreds of thousands of travellers stranded for days, and week of December saw the Baht rise to the highest level
bringing the economy, heavily dependent on tourism, to a since October, reflecting the optimism surrounding the new
near standstill. Protestors retreated in early December, administration.
when the Constitutional Court ordered the governing party
banned for election violations during the December 2007 Core inflation surpassed the central bank’s target rate in
elections. Estimates put the monetary impact of the airport June, prompting the central bank to raise its policy interest
seizure at approximately THB150 billion (US$4.3 billion) rate in July and August by 25 basis points each time, to
– or 1.5% of GDP. Repercussions for the tourism industry 3.75%. Headline inflation moderated to 2.2% p.a. in
as a whole are likely to be felt far into 2009, with hotel staff November, the lowest level in 14 months, in large part due
cutbacks being implemented to offset plunging occupancy to falling oil and raw material prices. Unemployment in
rates and weakening room rentals during what is normally 2008 remained steady at around 1.4%; however further
peak season. layoffs are expected as the ramifications of the world
recession and domestic political strife make themselves
Ebbing foreign demand saw Thailand’s exports recording felt. Positively, however, net NPLs in the third quarter of
lower than expected growth of 5.2% year-on-year in 2008 stood at approximately 3.3%, considerably lower
October, the lowest in more than six years. While some than 4.4% in the third quarter of 2007, although this may
estimates put overall export growth for 2008 at 19%, not be sustainable as the global economic recession bites.

* The PwC South East Asia Peninsula Region (SEAPEN) comprises Malaysia, Thailand and the Indochina countries of Cambodia, Laos and Vietnam.

Year-end 2008 Asia Pacific M&A Bulletin

56 PricewaterhouseCoopers
Deal Activity • Bangkok Commercial Asset Management Co., Ltd
(“BC”) and Sukhumvit Asset Management Co., Ltd
(“SA”) acquired NPLs for an estimated THB3.9 billion
Thailand Deal Activity (US$122.4 million) from BT’s Sathorn Asset
Deal values Deal volume Management Co., Ltd., an asset management service
8,000 120
provider. The distressed asset sale was a condition of
100 the CIMB investment in BT. BC and SA are 100% and
99.9% owned, respectively, by the FIDF.

No. of deals
US$ million

4,000 60 • Siam Commercial Bank Plc sold a tranche of NPLs to

Alpha Capital Asset Management and Morgan Stanley for
2,000 an estimated THB8.0 billion (US$253.7 million) as an
1,000 attempt to reduce its NPL portfolio to under 5% this year.
- -
7 7 7 7 8 8 8 8
200 200 200 200 200 200 200 200 • Amalgamation between Phatra Insurance Plc and
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Muang Thai Insurance Co. Ltd: The two non-life
Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as insurance companies partially held by Lamsam family
of 31 December 2008
have merged to compete in the insurance market.
The merger has made the new company, Muang Thai
M&A activity in Thailand for 2008 declined in terms of deal Insurance Plc, the 7th largest company in the market,
value while the number of deals increased. The total holding a 3% market share with paid-up capital of
number of deals was reported as 316 in 2008, up from 289 THB590 million. Its major shareholders include
deals in 2007; the value of deals dropped to US$4.8 billion Muangthai Fortis Holding Co., Ltd. with a 25.2% stake,
as opposed to US$13.2 billion in 2007. However, total deal the Lamsam family with 15.4%. and Fortis Insurance
value for 2007 was surprisingly high, and was achieved International N.V. with 10.0% of the company’s shares.
through a few large domestic transactions and strong
activity in the financial services sector. For 2008, deals in
the financial services sector continued to be strong with
Energy and Mining
another solid contribution from the energy sector. • PTT Chemical PCL acquired a 50% interest in Cognis
Telecommunications companies appear to have stalled Oleochemicals (M) Sdn Bhd, a 50:50 joint venture
investment activities this year, stemming from unclear between Cognis GmbH (“CG”) and Golden Hope
policies towards 3G licensing, looking instead to explore Plantations Bhd (“GH”), from CG, for 493.2 million
opportunities for partnerships or alliances, possibly Malaysian ringgits (US$152.1 million). Originally,
resulting in future deals. GH was a wholly-owned unit of Synergy Drive Sdn Bhd.

• BP Overseas Development Co Ltd (“BP”), a wholly-

Financial Services
owned unit of Banpu PCL, acquired the remaining
• The Financial Institutions Development Fund (FIDF) 78.4% interest which it did not already own, in Asian
entered into a Share Purchase Agreement with CIMB American Coal Inc (“ACCI”), a coal mining company,
Group Sdn Bhd (“CIMB”), the 2nd largest Malaysian for a consideration of approximately US$420 million in
bank, to sell its 42.1% stake in Bank Thai (“BT”), the 9th cash. BP previously owned 21.6% of AACI, and has
largest Thai bank, for an estimated THB5.9 billion been a major shareholder in the company since 2003.
(US$185 million). CIMB has also launched a tender offer The selling shareholders are reportedly mainly private
for the remaining 57.8% stake of BT shares outstanding equity funds and US investors.
with the offer to expire on Jan 6. The transaction was
subject to regulatory approvals.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 57
• BC Ltd (“BC”), a wholly-owned unit of Asia Thai Mining
Co Ltd, acquired all the outstanding common stock of
Pan African Mining Corp (“PA,”) a mineral mining There is a sense of hope that the recent appointment
company, via a tender offer, for a total value of (16 December 2008) of a new coalition government will help
US$132.4 million. The offer was conditioned upon at to calm the political turmoil that has plagued the economy
least 66.6% of PA’s shares being tendered. The for the past three years. The new administration has recently
transaction was effected via a scheme of arrangement, announced a new cabinet line-up, and the economic team
and was subject to regulatory and shareholder has broadly met with approval from the commercial sector.
approvals, but has now been completed.
Many express cautious optimism that the new prime
minister will be able to implement the policies necessary to
Other Sectors bring the economy back on track. However, the road ahead
• Always Rich Holding Ltd. has acquired a 78.5% stake will not be easy. The economy is slowing, and new stimulus
in Advance Agro Plc (“AA”), a paper mills owner and packages and measures will need to be implemented
operator. The transaction size is estimated at over without delay in order to avoid a further slide into recession.
THB16.0 billion (US$ 550 million). AA was In addition, the new prime minister will still need to win the
subsequently de-listed from the SET. support of the rural majority and demonstrate the he is a
prime minister for all Thais, in order to detach himself from
• Cementhai Ceramics Co. Ltd. (“CC”), a majority-owned the controversial protestors – and thus maintain some
unit of Siam Cement PCL, has acquired 45.9% of semblance of political stability. Described by one political
Thai-German Ceramic Industry Plc. (“TG”). CC analyst as a “goldfish amongst sharks”, the prime minister
subsequently launched a tender offer to acquire the will need to be prepared for further political wrangling.
remaining interest in TG, a ceramic wall and tiles
manufacturer and wholesaler. By some estimates, growth in 2009 is forecast to average at
around 3.1%, down from 4.5% in 2008. While a depressed
market may open up M&A opportunities for cash-rich
companies looking for strategic bargains, potential investors
will still be wary of the fragile political situation.

In the context of M&A, the prime minister’s most urgent

task will be to reassure foreign investors that Thailand is,
once again, open for business. This means that the global
business community will need to believe that the rule of
law will be upheld, and that the prime minister will bear full
responsibility for it. It is difficult to expect significant
increases in activity or deal values until local politics
settle. Until then, we continue to expect that deals in
Thailand will be dominated by local activity, traditionally
at low deal values.

Year-end 2008 Asia Pacific M&A Bulletin

58 PricewaterhouseCoopers
Asia Pacific M&A Bulletin Year-end 2008
PricewaterhouseCoopers 59
2008 deal value was lower than 2007, but economic growth remains robust.
Relaxation of foreign ownership regulations will have a positive impact on
M&A in 2009

On 1st January 2009, legislation came into force making

a number of service industries significantly more open
to participation by foreign businesses. These include
architecture, engineering, computer and related services,
advertising, market research, construction, education,
franchising, and distribution services. Government
decree 139 also became effective on 1 January 2008.
This decree, in principle, removed limits on foreign
Stephen Gaskill ownership in Vietnamese companies, except in relation
Transactions Leader to the 49% limit in public listed companies, and a 40%
Vietnam limit in public non-listed companies. In addition, sector
specific limitations, most importantly in telecoms,
financial, and other services remain.

However, while these changes provide good examples of

Current Environment the government following up on WTO commitments, there
is still a lack of guidance available regarding the execution
Despite the severity of the global financial crisis in the
of other commitments.
second half, the General Statistics Office (“GSO”) of
Vietnam’s initial estimate of economic growth was still Overall, Vietnam continues to aim to live up to the high
a respectable 6.2% p.a. expectations international investors have from the “next
Asian tiger”. The government continues to participate in
Inflation peaked in August at 28.3% p.a., before declining
and encourage forums facilitating consultation between
to 19.9% p.a. in December. According to the GSO, the
investors and regulators, in order to address ways in which
average CPI growth for the whole of 2008 was 23.0%.
to improve the business climate.
The prime interest rate set by the central bank peaked
at 14.0% in the summer before being cut back to 8.5%
by the year end.
Deal Activity
There was a sharp slowdown in the licensing of new FDI
commitments in the last quarter of 2008. According to the
Vietnam Deal Activity
year end estimates from the Ministry of Planning and Deal values Deal volume
Investment, total annual licensed FDI commitments reached 800 60
US$64 billion, over three times the level in 2007. 700
The benchmark stock exchange indicator, the VN-Index, 500
No. of deals
US$ million

closed at 315.6 on the last trading day of December falling

400 30
from 918 points at the end of 2007. The rate of listings was
slower than originally anticipated, however the longer term 20
policy of further transfer to private ownership remains in 10
place. The listing of Vietnamese companies on overseas - -
stock exchanges also remains a hot topic. 20
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

As in many other countries around the world, the Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
government of Vietnam is also working on the details of of 31 December 2008

various stimulus initiatives to mitigate the worst

consequences of the global financial crisis, with the There has been a very strong level of interest in M&A in
government apparently looking to invest some US$6 billion Vietnam during 2008. Successful domestic companies have
into the economy. been increasingly open to deal making as they pursue
expansionary strategies, while companies faring less well
In January 2009, Vietnam concluded two full years of were more open to discussion of equity stake sales to
membership in the World Trade Organization. One of the domestic and foreign investors.
most significant regulatory developments in connection
with WTO membership obligations in 2008 was the granting Market participants generally agreed that valuations were
of licences to wholly foreign owned financial institutions. much more realistic during 2008 than in 2007, as the stock

Year-end 2008 Asia Pacific M&A Bulletin

60 PricewaterhouseCoopers
market declined to an average PE ratio close to 10, (“PvD”) acquired the remaining 49% stake not already
and access to credit became significantly more difficult. under its control in Petrovietnam Drilling Investment Corp,
Furthermore, there has been an increase in the level of a rig owning entity.
understanding regarding the mechanics of deal making,
including the importance of due diligence, and an improved Also in August, in a deal valued at approximately
appreciation for valuation techniques, although there is still US$9.1 million, Daikin Industries Ltd. of Japan bought
plenty of scope for improvement. The government in Viet Kim Co., a Ho Chi Minh City-based air conditioner
general remains supportive of market entry by way of distributor.
acquisitions. Foreign acquirers continue to be behind many
Finally in the same month, in another important deal,
of the bigger deals despite the remaining ownership
Holcim Vietnam acquired COTEC Cement from the
restrictions for example in the financial sector and in the
Vietnamese owned COTEC Group for an estimated
case of listed companies.
US$50 million.
Strong interest in deal making unfortunately did not
In October, the Asian operating arm of Bunge Limited
translate to growth in all measures of M&A activity. While
announced the acquisition of a 50% stake in the owner/
the number of announced deals increased to 150 compared
operator of Phu My Port.
to 111 in 2007, the total value of these announced deals
came to only US$1.0 billion compared to US$1.7 billion in Also in October, Nippon Steel Corp signed a memorandum
2007. This reflects a lack of larger deals and the slow pace of understanding to acquire a 10% – 20% stake in
of privatisation, since most of the large deals in 2007 were POSCO-Vietnam Co. Ltd., a cold-rolled steel manufacturer
privatisations of SOEs. and a wholly-owned unit of POSCO Co. Ltd., of Korea.
A US$530 million plant owned by POSCO-Vietnam Co.
Financial Services Ltd., is under construction in the south of the country and
is expected to start production in September 2009.
In August, France’s Société Générale announced the
acquisition of 15% of Southeast Asia Bank (SeABank). In December, TBWA Worldwide announced the acquisition
It is understood that Société Générale may raise its holding of a “significant shareholding” in Biz Solutions. TBWA
to 20% at some point, the maximum allowable under the is committed to bring its global integrated marketing
current regulations. brand “Tequila” to Vietnam by rebranding Biz Solutions
as Biz Tequila.
Also in August, HSBC became the first foreign bank in
Vietnam authorised to hold a 20% interest in a domestic In December, Watson Wyatt Worldwide Inc. announced that
bank by increasing its stake in the Vietnam Technological it had acquired SMART Human Resource Vietnam Company
and Commercial Joint Stock Bank (“Techcombank”) from Limited (“SMART HR”), an HR consulting services firm.
14.4% to 20%.

United Overseas Bank (UOB) announced an increase in its Private Equity

shareholding in The Southern Commercial Joint Stock Bank In July, IDG Ventures Vietnam, which announced three
of Vietnam (Southern Bank) from 10% to 15% in October investments in the first half of the year, has in July
2008. The deal value was US$15.6 million. announced a strategic partnership with Mua Ban Joint
Stock Company, the operator of the popular classified
Ocean Bank sold a 20% stake to Vietnamese state-owned
website Terms were not disclosed.
Petrovietnam Oil & Gas Corp for 400 billion Vietnamese
Dong (US$24 million) in October 2008. In August, VinaCapital acquired an undisclosed minority
stake in Phu My Bridge Corporation for US$10.8 million.
Other Sectors
BankInvest, a fund management company owned by 53
In July, Jardine Cycle & Carriage Limited (“JC&C”) Danish banks, remains active via its Private Equity New
announced that it had acquired a 12% interest in Markets (PENM) fund. In October, it acquired a 20% stake,
Truong Hai Auto Corporation (“THACO”), a leading valued at US$2.7 million, in Son Kim Fashion, an apparel
Vietnamese automotive company, for a cost of manufacturer and distributor.
approximately US$41 million and in August JC&C
acquired a further 8% stake for US$39 million. In December, the Mekong Enterprise Fund II invested
US$5 million in Digiworld Corporation, an electronics
A significant domestic deal announced in August, distributor. Also in December the Mekong Enterprise
Petrovietnam Drilling & Well Services Joint Stock Company fund sold its investment in Saigon Gas to Total of France.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 61
Outlook already equitised SOEs such as Vietinbank and Sabeco
close deals to sell significant stakes to foreign investors.
Uncertainty resulting from the global financial crisis makes The size of these potential deals is such that they
predictions regarding 2009 M&A activity extremely difficult. would have a considerable impact on the overall value
However, in our view, interest in Vietnam remains high as of deal activity.
foreign investors continue to see the underlying long term
potential of the economy in a positive light. Accordingly, In the view of recent changes in local legislation, we
fund management and commercial companies will would also expect increased foreign investment via
continue to pursue and complete significant numbers of M&A in those sectors now open to 100% ownership
M&A deals in 2009. It appears likely, however, that most by foreigners. Subject to improved consistency in the
investors will move forward on deals more cautiously than application of this new legislation, we expect to see a
they did prior to mid-2008 and that negotiations on pricing number of the joint ventures established under the
and deal terms will in general be tougher and more time previously more restrictive legal environment being
consuming to conclude. converted into 100% foreign owned companies.
There may also be further realignment and consolidation
Much will also depend on the pace of privatisation amongst Vietnamese companies operating in those
of major corporations such as MobiFone and on whether sectors most affected by the economic downturn.

Year-end 2008 Asia Pacific M&A Bulletin

62 PricewaterhouseCoopers
Asia Pacific M&A Bulletin Year-end 2008
PricewaterhouseCoopers 63
Year-end 2008 Asia Pacific M&A Bulletin
64 PricewaterhouseCoopers
New Zealand

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 65
The outlook for 2009 remains uncertain, but the M&A market may
be supported by distressed sales in a number of sectors

industries. Pressure on the retail, tourism and

manufacturing sectors is also negatively impacting
employment levels.

The current account deficit (“CAD”), seasonally adjusted,

contracted to AUD$9.7 billion in the third quarter from
AUD$14 billion in the second quarter. The trade balance
improved by AUD$2.7b to record a AUD$1.4b surplus,
with export prices increasing 10.2%, offsetting import
Tom Fenton price increases of 4.4%.
Corporate Finance Leader
Australia The Australian Dollar weakened significantly against all
major currencies since mid-2008, driven largely by the
decline in commodity prices, currency traders unwinding
AUD investments, and the significant interest rate cuts
Current Environment undertaken by the RBA in the second half of 2008. This
The economy has slowed significantly, with quarterly GDP has sheltered the Australian economy to a certain degree,
growth of 0.1% in the third quarter of 2008, and annual particularly with regards to mining and farming exports.
growth slowing to 1.9% p.a. from 2.9% p.a. in the second
quarter. The economy was impacted by uncertainty driven In the second half of the year, the Australian equities
by the global financial crisis, resulting in a continued decline market accelerated its first half decline, with the ASX 200
in consumer confidence and weaker household spending. dropping another 32% in H2 2008 to be down 44% for the
Excluding the farming sector, third quarter GDP growth year. The declines were across the board but finance and
would have been negative, with non-farm GDP dropping by resource stocks were the main fallers. Indices indicate that
0.3%, the first decline since the December quarter in 2000. market confidence is at a record low while volatility is at a
Motor vehicle sales in November dropped by 9.4% to be record high.
22.2% lower than in November 2007. Residential house
prices reduced due to increasing unemployment and
distressed sellers being forced to sell properties at Deal Activity
discounts in order to meet financing obligations.

The Consumer Price Index (“CPI”) rose by 0.4% in the third Australia Deal Activity

quarter, with annual inflation standing at 4.1% p.a., well Deal values Deal volume
60,000 900
down from 5.8% p.a. at the end of 2007. The decrease in 800
inflation was driven by a reversal in petrol prices, lower car 50,000
prices, lower air fares and weak retail-sector demand. 40,000 600
No. of deals
US$ million

These factors are forecast to continue to drive inflation 500

down further in the near term. This has allowed the Reserve 400

Bank of Australia (“RBA”) to make four consecutive interest 20,000 300

rate cuts totalling 3.0% since September, as it changed its 10,000

focus to stimulating the slowing Australian economy. - -
Interest rate futures markets are pricing in another 0.75% 2 00
2 00
2 00
2 00
2 00
2 00
2 00
2 00
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
to 1.25% cut to the cash rate by mid-2009.
Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
The labour market remained relatively strong, with the of 31 December 2008

participation rate stable at 65%, although the

unemployment rate increased slightly from 4.1% in July Deal activity fell in the second half of the year, with only
to 4.3% in October. Further pressure on employment is AUD$57 billion worth of transactions, down 10% from the
expected as the impact of the credit crisis forces first half. This was partly due to the collapse of a number of
companies, particularly those in the financial sector, major deals including Centro Properties and ABC Learning
to review their headcount. ANZ and Macquarie Group Centres, and the M&A led business models of Babcock and
were two high profile Australian banks to make significant Brown and Macquarie coming under pressure. The highest
job cuts, along with the local subsidiaries of foreign profile casualty was BHP’s withdrawal of its US$137 billion
investment banks. In December, mining giant Rio Tinto bid for Rio Tinto. BHP stated that the deal was no longer in
announced its plan to cut 14,000 jobs, indicating that the best interests of shareholders given Rio’s debt levels
employment pressure will be felt across non-finance and falling commodity prices.

Year-end 2008 Asia Pacific M&A Bulletin

66 PricewaterhouseCoopers
On the 1st of December, St George and Westpac officially
merged, in what was Australia’s largest banking merger and
the largest domestic Australian deal of all time, creating The outlook for the Australian economy remains one of
Australia’s second largest bank with a market capitalisation deep uncertainty. Key drivers of growth in recent years have
of US$45.8 billion, marginally behind that of Commonwealth been the commodities and financial sectors, which have
Bank (US$46 billion). The deal left St George shareholders been among the hardest hit by the downturn. However the
owning 30% of the combined entity, and while there is a reduction in interest rates by the RBA, the depreciation of
potential for job losses, Westpac has given a commitment the Australian Dollar, and the government’s recently
to maintain net branches, and minimise job losses through announced AUD$10.4 billion stimulus program should all
natural attrition and redeployment wherever possible. help to offset economic weakness.
Further activity in the banking sector included the
Commonwealth Bank acquiring HBOS PLC’s Australian In terms of M&A, we believe the following industries may
operations for a total of $2.1 billion, while Suncorp generate the most activity during the first half of 2009.
considered the sale of its insurance businesses. However,
following the implementation of the Government deposit Financial Services
guarantee, this did not proceed.
There are a number of distressed assets currently for sale
In November Qantas and British Airways (“BA”) announced in the Australian market, such as Allco and Babcock and
their plans to possibly merge in what would be an $8 billion Brown, and other distressed players are likely to emerge.
tie-up. These talks were subsequently called off in mid At present, funding difficulties across the sector are
December with both parties unable to agree on terms of preventing bids, but buyers may emerge if credit
a deal. Commentators continue to identify Qantas as a conditions improve.
potential player in further industry consolidation, and have
highlighted a number of Asian airlines as potential targets. Property
Other significant bids and deals announced during the With high levels of gearing, and commercial and industrial
second half of 2008 included: property prices falling in Australia, downgrades and
write-offs across the property industry are likely to drive
• Coca Cola Amatil (“CCA”) said it did not consider an forced asset sales, capital raisings, and consolidation in
AUD$8 billion merger proposal from brewer Lion Nathan the property sector in 2009. During the second half of
to be compelling, after the soft-drinks maker said the 2008, a number of listed property trusts, including
scheme was “not attractive’’ to its largest shareholder Macquarie Office Trust, GPT, Dexus, Mirvac, Goodman,
and Australand, have successfully raised equity via rights
• Speculation emerged that China National Petroleum issues, placements or a combination of both. This activity
Corp (“CNPC”) was considering potential partners for is likely to continue into 2009. There is also potential for
an AUD$8 billion-plus takeover bid for the oil and gas forced asset sales from within the sector in 2009, including
producer Santos Centro Properties and Babcock and Brown.
• ConocoPhillips agreed to pay up to AUD$10.1 billion
to join Origin Energy in a natural gas venture in Private Equity
Queensland, potentially trumping a hostile takeover
Private equity (“PE”) deal flow in 2008 slowed significantly
bid for the company from Britain’s BG Group
from 2007, as the increased cost of and limited availability
• BG Group also agreed to buy Queensland Gas Co. of of debt, along with the general economic uncertainty,
Australia for AUD$5.6 billion, to strengthen its position in forced many PE firms to sit on their hands. While there are
Asia’s fast-growing liquefied natural gas market a number of interesting opportunities arising, the limited
amount of finance available will make large transactions
• The world’s largest listed uranium company, Cameco very difficult to complete in 2009. PE firms are also
Corp, teamed up with Mitsubishi Development to expected to focus their attention on improving the
acquire Rio Tinto’s Kintyre uranium project in Western performance of their existing portfolio companies, many of
Australia for AUD$518.3 million, despite a state ban on which are being challenged by the combination of slowing
uranium mining economic conditions and relatively high levels of debt.

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 67
Mining and Energy Infrastructure
The second half of 2008 saw the resources sector lose 2008 saw several infrastructure and utilities funds, such
some of its momentum from the first half of the year, as Babcock and Brown Infrastructure, Babcock and
as a result of falling commodity prices and lower than Brown Power, and Babcock and Brown Wind indicate
expected demand from China and other trading partners. plans to deleverage through asset sales. Yet another
Resource companies are scaling back and deferring example of the pressure being felt in the infrastructure
planned capital expenditure and expansions. sector was speculation that the underwriters of
Consolidation in the sector is expected to continue BrisConnect, Macquarie Capital Advisers and Deutsche
well into 2009, as companies seek to increase size to Bank, could seek to delist or buyout the toll-road group.
improve efficiency and provide higher levels of liquidity. The slowing global economy and contracted debt
Among the resource companies likely to be involved in markets are likely to continue to place pressure on the
M&A activity are Felix Resources and Perilya Ltd. infrastructure sector in 2009, and a large number of
capital raisings and distressed asset sales are expected.
Asciano is one high profile transport company under
pressure from its bankers, as the listed infrastructure
company, with a primary focus on transport, must
refinance around $2.8 billion of its debt in May 2010, and
is expected to face debt covenant challenges in 2009.

Year-end 2008 Asia Pacific M&A Bulletin

68 PricewaterhouseCoopers
Asia Pacific M&A Bulletin Year-end 2008
PricewaterhouseCoopers 69
New Zealand
GDP growth has decreased due to a slowing retail environment and the
tightening of credit lines, as the full impact of the credit crunch flows into the
New Zealand economy. Private equity deals and transactions in general have
decreased significantly

One area of deflation has been property prices, which have

reacted to the weakening economy, falling 9% in the third
quarter. However lower prices, tax cuts and lower interest
rates have increased housing affordability in recent months,
and may help to support the market going forward.

Economic weakness was also seen in the unemployment

statistics which rose 0.3% in the September quarter to
4.2% (94,000 people). The government has introduced the
Mark Averill ReStart assistance package, a package for workers made
Corporate Finance Leader
redundant by the slowing New Zealand economy. ReStart
New Zealand
will be available to people who have been in work for the
last six months, including self-employed people and those
who have changed jobs or employers during that time.
Current Environment In order to combat the downturn, the Reserve Bank has cut
The latest gross domestic product figures released by the official cash rate by 325 basis points since June from
Statistics New Zealand indicate a slowing of economic 8.25% to 5%. The 23 October cut of 100 basis points
activity. GDP declined 0.4% in the September quarter. followed by the 4 December cut of 150 basis points were
This follows falls of 0.3% and 0.2% in the first and second successively the largest changes in the benchmark rate
quarters respectively. Annual GDP growth the year ending since its introduction in March 1999. Reserve Bank
Q3 was 1.7%. Governor Alan Bollard commented that the ongoing financial
market turmoil and the marked deterioration in the outlook
A key driver of the decline was the decrease in for global growth played a large role in the recent cuts.
manufacturing volumes, which fell 2.3% in the third Economic activity in New Zealand’s major trading partners is
quarter, following a decrease of 1.1% in Q2, taking output expected to contract over the next few quarters, which will
to its lowest level since the first half of 2003. Despite the further constrain economic activity in New Zealand.
fall in the volume of sales, price increases led to a rise of Inflationary pressures, which saw the official cash rate raised
1.3% in the seasonally adjusted value of manufacturing four times during 2007, are abating, and inflation is expected
sales in the September quarter. to return to sit within the 1 – 3% target band within the first
half of 2009. There are still however concerns over the effect
Meat and dairy product manufacturing were relatively flat of electricity prices and local property taxes on domestically
over this quarter, with a seasonally adjusted volume rise of generated inflation.
0.3%. The major fall in volume came from paper and paper
products, structural, sheet and fabricated metal products The six months ending 30 November 2008 saw a
and machinery and equipment, which each contributed considerable fall in the value of the New Zealand dollar
about a fifth of the decrease. relative to the US dollar. The New Zealand dollar traded
between a high of US$0.79 on 3 June 2008 and a low of
GDP was also affected by the fall in retail sales of US$0.53 on 21 November, a fall of 32%. The decline is
NZ$69 million or 1.3% in the month of October 2008. attributable to the reduction in interest rates, which has
This fall was primarily driven by a reduction in motor vehicle made the New Zealand dollar less attractive for the carry
retailing. In the year ending September 2008, motor vehicle trade, and this has been exacerbated by the deleveraging
retailing fell by 19.6% taking it to its lowest level since 2001. of many hedge funds involved in this trade.
Automotive fuel retailing also fell by 2.2% in October as
petrol and diesel prices fell. A further cause of the downturn In the year to date, the NZX50 Index has fallen from a high
has been the dwindling supply of credit. While firms are still of 4,069 at the beginning of the year to 2,569 in November,
able to utilise existing lines of credit, new credit is more a fall of approximately 37%. It experienced a sharp decline
difficult to obtain, and this is reducing investment. of approximately 25% in the six months to December.

Declining output has been accompanied by rising prices, 2008 also saw a change in the government of New Zealand.
with the CPI increasing 5.1% over the year to September, The left-wing Labour Party Government, in power since
the highest increase since the year to June 1990. A major December 1999, was defeated in the 8 November general
constituent of this has been food inflation with prices election by the right-wing New Zealand National Party.
increasing 10.3% to the year ended November 2008.

Year-end 2008 Asia Pacific M&A Bulletin

70 PricewaterhouseCoopers
Deal Activity plants. Half its sales are in exports to Australia, where it
has had a supply arrangement with Simplot, which has a
wide range of food brands including Leggo’s, Edgell and
New Zealand Deal Activity Birds Eye.
Deal values Deal volume
4,000 140
ING Property Trust divested its property portfolio in
3,500 120 December to an undisclosed acquirer, for NZ$49.4 million.
100 Included in the transaction were five properties in Garnett
Avenue, Hamilton; Hawkeston Street, Wellington;
No. of deals
US$ million

McCormack Place, Wellington; Park Avenue, Grafton;
1,500 and The Strand, Parnell.

20 Through its wholly-owned GPG Twenty One Limited,
- - Guinness Peat Group, acquired an additional 5.3% stake in
07 07 07 07 08 08 08 08
20 20 20 20 20 20 20 20 Tower Ltd, an insurance company, for NZ$67.5 million,
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
taking its shareholding in the company to 35%.
Source: Thomson Reuters, based on total domestic, inbound and outbound deals announced as
of 31 December 2008
Over the last six months, PwC New Zealand has advised on
the sale of La Bonne Cuisine to Heinz Watties, the sale of
Deal activity in New Zealand has slowed significantly, as the Packsys to Aperio Group and the sale of Howick and
number of deals fell 44% in the third quarter of 2008. Deal Eastern to Souter Holdings. PwC New Zealand also advised
value also fell significantly from US$2.7 billion in the second Archer Capital on its successful acquisition of Australian
quarter to US$0.36 billion in the third, but rose again in the Helicopters.
fourth quarter, mainly on the back of the acquisition of
Frucor Group by Suntory Limited for NZ$1.2 billion, the
largest transaction in the New Zealand market in the past
six months. Outlook
Japanese brewery, Suntory Limited reached an agreement The economy is expected to recover in 2009 with growth
with the France-based Danone Group to acquire 100% forecast by the EIU at 1.1% for the year.
ownership of Frucor Group, owned by the Danone Group,
The outlook for transactions remains uncertain. One deal
for a total consideration of around NZ$1.2 billion. Over the
which may re-emerge is Australia’s Woolworths and
past six years Frucor has played a major role in Danone’s
New Zealand-owned Foodstuffs’ interest in acquiring The
growth strategy, with its energy drink brand “V” being a
Warehouse. In the previous edition, we noted that the
major driver of growth. The “V” brand currently has 60%
Commerce Commission launched an appeal to block any
of the New Zealand energy drink market and about 50%
takeover bids. The hearing took place in April and it was
of the Australian market. The divestment of Frucor comes
announced on 31 July that the Court of Appeal had
out of a recent refocus by Danone on spring water and
blocked the supermarket giants, who each own 10% of the
natural mineral water-based beverages. The proceeds
company, from launching takeover bids. The key issue to
of the sale will be allocated to debt repayment. The
any takeover has been the recent introduction by The
acquisition, allows Suntory to further diversify both its
Warehouse of its “Extra” stores, which have a full grocery
product offering and geographic reach.
offering. The Commerce Commission believed that if left
Fonterra Co-Operative Group Ltd acquired the yogurt and independent, The Warehouse would continue to develop
dairy dessert business of Nestle Australia Ltd, a food and this format and increase competition within the
beverage producer, and a wholly-owned unit of Nestle SA, supermarket sector, where Woolworths and Foodstuffs
for an estimated AUD$36 million. control almost the entire market. However, The Warehouse
Extra has recently announced that they will withdraw from
Simplot Australia Pty Ltd, a wholly-owned unit of JR selling food, reverting to just general merchandising.
Simplot Co aquired Mr. Chips Holdings Ltd, a potato chip This has changed the market characteristics on which the
manufacturer and wholesaler for NZ$65 million. Mr Chips commission based its rejection. It is likely that Woolworths
manufactures over 25,000 tonnes of frozen and chilled and Foodstuffs will re-apply for clearance.
potato products annually in its Auckland and Christchurch

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 71
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Year-end 2008 Asia Pacific M&A Bulletin
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• Regional Merger & Acquisition Contacts •

Asia Pacific Chao Choon Ong +65 6236 3018

Leaders Nick Dignan (M&A Tax) +852 2289 3702
Matthew Wyborn (Corporate Finance) +81 (3) 6266 5740

North Asia
China Matthew Phillips (Transactions) +86 (21) 2323 2303
Danny Po (M&A Tax) +852 2289 3097
Xie Tao (Corporate Finance) +86 (10) 6533 2002

Hong Kong David Brown +852 2289 2400

Nick Dignan (M&A Tax) +852 2289 3702

Taiwan Peter Yu +886 (2) 2729 6157

Steven Go (M&A Tax) +886 (2) 2729 5229

Japan Matthew Wyborn +81 (3) 6266 5740

Kazuya Miyakawa (M&A Tax) +81 (3) 5251 2462

Korea Sang-Tai Choi +82 (2) 709 0403

Sang-Keun Song (M&A Tax) +82 (2) 709 0559

South and Southeast Asia

India Bharti Gupta Ramola +91 (124) 462 0503
Hiten Kotak +91 (22) 6689 1212

Indonesia Rizal Satar +62 (21) 5289 0351

Mirza Diran +62 (21) 5289 0950

Malaysia Mohd Anwar Yahya +60 (3) 2173 1811

Frances Po (M&A Tax) +60 (3) 2173 1618
Paran Puvanesan (Corporate Finance) +60 (3) 2173 1383

Singapore Chao Choon Ong +65 6236 3018

Chris Woo (M&A Tax) +65 6236 3688
Amitava Guharoy (Corporate Finance) +65 6236 4118

Sri Lanka Ravidu Gunasekera +94 (11) 471 9838 ext 506
Daya Weeraratne (M&A Tax) +94 (11) 471 9838

Thailand Gary Murphy +66 (2) 344 1137

Paul B.A. Stitt (M&A Tax) +66 (2) 344 1119
David LaChina (Corporate Finance) +66 (2) 344 1423

Philippines Mary Jade T. Roxas-Divinagracia +63 (2) 459 2060

Alex Cabrera (M&A Tax) +63 (2) 459 2002

Vietnam Stephen Gaskill +84 (8) 3823 0796

Richard Irwin (M&A Tax) +84 (8) 3823 0796
David LaChina (Corporate Finance) +66 (2) 344 1423

Australia Sean Gregory +61 (2) 8266 2253
Mark O’Reilly (M&A Tax) +61 (2) 8266 2979
Tom Fenton (Corporate Finance) +61 (2) 8266 2752

New Zealand Mark Averill +64 (9) 355 8682

Asia Pacific M&A Bulletin Year-end 2008

PricewaterhouseCoopers 73
Asia Pacific M&A Bulletin – Seeking opportunity in crisis
Year-end 2008
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