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S3 admits Taiwan rejected chip sale to Via

Negotiations to try to rescue JV continue in earnest

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S3's attempt to form a joint venture with Via and to then sell the Taiwanese mobo company its graphics chip business was initially rejected by Taiwan's government, S3 boss Ken Potashner admitted yesterday.

"The Ministry of Economic Affairs of the Government of Taiwan initially denied the application for our joint venture based on VIA’s initial application," Potashner said in an adjunct to S3's statement of its Q2 2000 results.

Fortunately for Via and S3, the Ministry said it would "reconsider its decision upon receipt of revised information".

"We are working with VIA to try to present a proposal that is acceptable to the Taiwanese government," Potashner added.

That Taiwanese officials have a problem with a deal emerged last month. The completion of the JV was originally set to take place by the end of June, but that deadline came and went without the final handshake.

Shortly afterwards, Via claimed the delay was merely a matter of the slowness of such Ministry vetting procedures. "[It] always takes quite a bit of time," the company said, and we speculated that it might have more to do with serious problems with the JV than governmental confusion.

Indeed, a Taiwanese official later said: "This is the largest overseas transaction that has been proposed to us so far this year. We have to evaluate the case with great caution due to the huge amount involved as well as the benefit for Via's shareholders."

Via's takeover of S3's chip business is worth around $377 million. Taiwanese regulators must give their approval for any such venture that's worth more than $50 million.

Other government staff said they are worried because the cash and shares component of the deal, $323 million out of the total $377 million, is nearly three times the size of Via's $120 million paid-in capital.

The sale remains the lynchpin of S3's strategy to remake itself as an Internet and digital media company and shrug off its association with the graphics semiconductor business. If the deal collapses, it would be a bitter blow to the company's plans.

The tone of the Taiwanese officials' comments suggests to us real scepticism that the deal will be allowed to go ahead, as does Potashner's own statement. It certainly expresses no optimism that the deal will be finally signed off by the Taiwanese authorities, at least not in the short term. Taiwan will not come to a new decision on the Via-S3 deal until the middle of this month at the earliest. ®

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