Another LG Display sell-down by Philips

The Dutch firm triggers an ADR sell-off after offloading $1.1 billion worth of LG Display shares at an 8.1% discount.

Royal Dutch Philips has sold another W1.03 trillion ($1.1 billion) worth of shares in LG Display, reducing its stake in the Korean manufacturer of thin-film transistor liquid crystal displays (TFT-LCDs) to 13.2%. This was the second placement of LG Display shares by the Dutch firm in just five months and suggests it is looking to exit the Korean company altogether.

It was also the first block trade of size from Korea this year.

The seller took advantage of a rebound in investor sentiment following a sharp bounce on Wall Street overnight, which meant it was able to attract the attention of the not insignificant number of investors who are sitting on sizeable piles of cash that they need to put to work. Shares in LG Display, which until earlier this year was known as LG.Philips LCD, have also been on an upward trend since the end of January amid a favourable medium-term outlook for the sector. The stock has gained about 20% from its lows and clawed back just under half of the losses incurred after it hit a high in early November. It did fall 0.2% yesterday though.

The shares were marketed at a price between W42,750 and W44,250 and priced at the bottom for an 8.1% discount to yesterday’s close of W46,500. The low-end pricing suggests investors weren’t falling over themselves to get their hands on the stock, although sources say the order book was comfortably oversubscribed to a level where the 25% upsize option could have been exercised in full. However, the seller and joint bookrunners Citi and Credit Suisse decided against this in light of the still tricky markets and settled for using part of the option only.

Because Philips still retains a sizeable stake in the company it would have been in its interests to keep the allocations tight so that there won’t be a disruption to the uptrend in the share price. The base offering of 23 million shares was increased to 24 million, representing 6.7% of the company.

“The markets may have bounced back today, but most clients aren’t convinced that it will last and it is almost impossible to predict where the shares will be two days or a week from now,” one source says. “But this is a big name and at an 8% discount, investors were quite happy to buy.”

The response among US investors to the sell-down wasn’t that great, however, and with half an hour left of trading this morning LG Display’s American depositary receipts were down 9% at $22.03, or slightly more than the 8.1% placement discount. At the same time, the Dow Jones index was off about 0.5% after giving up its earlier gains.

Much of the appetite for LG Display over the past month has come from local buyers and, indeed, domestic investors accounted for more than one-third of the demand for this deal with the remainder coming primarily from Europe and Asia. Altogether about 120 investors participated in the offering.

The sell-down represented about one-third of Philips’s remaining 19.9% stake in LG Display and may well have been the hardest leg of what could be an exit strategy involving three placements within a 12-month period. The first sell-down, which totalled $2.2 billion and reduced its stake from 32.5%, attracted a lot of attention as a liquidity event. The final one will remove the overhang that Philips’s remaining shares have on the stock and which likely has at least some negative impact on the share price. The just completed second sell-down will change little in that respect.

LG Display was set up in 1999 as a joint venture between Korea’s LG Electronics and Philips, Europe’s largest consumer electronics maker and a provider of healthcare, lighting and lifestyle products. The Dutch firm no longer considers this a core investment, however, and is expected to sell out as part of a drive to divest non-core holdings in general. Over the past 18 months it has also trimmed its stake in chip maker Taiwan Semiconductor Manufacturing Corporation and has sold a majority stake of its own semiconductor unit to a group of private equity firms. It has agreed to a three-month lock-up on its remaining stake in LG Display, suggesting it could return to the market as early as mid-June.

Philips’s previous placement on October 10, 2007 was done the day after the company reported its best quarterly profit in more than three years and as a result sparked a lot of interest among investors that allowed the deal to be priced at a tight 3.5% discount. However, it also meant that the sale came before the share price had had a chance to property react to the positive news. The rally that began after that earnings report eventually took the stock to a closing high of W56,000 on November 6, but at the time of the placement it was trading at quite similar levels to now. Thanks to the tight discount though, the placement price on that first deal was fixed at W43,425 – slightly above the price achieved last night.

Most analysts still have a positive outlook on the stock ahead of the company’s first quarter earnings release in early April. According to Bloomberg data, 32 of the 38 analysts who cover the company have a buy recommendation on the stock and four have a hold. In a report published yesterday, UBS projected that LG Display is set for a strong first quarter and a record year in 2008 thanks to tight supply conditions and firm selling prices. The bank raised its 12-month target price to W63,000 from W61,000 citing the company’s undemanding valuation at only 1.4 times book.

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