The transaction will be effected via a scheme of arrangement in Singapore where ASE Test is incorporated. ASE Test shares are listed on Nasdaq and trade in the form of Taiwan depositary shares (TDS) on the Taiwan Stock Exchange (each TDS represents 1/80 ASE Test ordinary shares).
In an all-cash deal, ASE will pay $14.78 for each share and the equivalent of $0.185 in Taiwan dollars for each TDS. The price represents a 25.6% premium over the price at which ASE Test closed on August 31, the last trading day before the deal was announced.
But ASE Test shares gained significantly in early trading on the Nasdaq on Monday, after the deal was announced, increasing 21.97% to $14.35 and narrowing significantly the premium to market price at which the deal was announced. ASE's own American depositary shares gained about 1% on the NYSE to around $5.05.
ôThe transaction ASE Inc has announced to delist ASE Test will serve a number of objectives: it will simplify the organisational structure, allow ASE Inc to strengthen its brand and give it financial flexibility,ö explains Rahul Shukla, head of regional telecommunications, media and technology for Citi. ôOverall, it will reinforce the standing of ASE Inc as a leading industry player."
Citi acted as advisor to ASE, while Lehman Brothers is advising ASE Test. Lehman had no comment.
In its stock exchange filing ASE says the deal will: ôenhance recognition by customers and investors by promoting a single common brand for the ASE Group, and increase ASE Inc's flexibility to make investments and allocate resources within the ASE Groupö.
The deal is subject to approval of three quarters, in value terms, of non-affiliated ASE Test shareholders. In other words, 75% of the minority shareholders must vote in favour of the deal for it to go through. The shareholding is largely institutional and is widely dispersed, says a source close to the deal.
ASE is using Singapore's scheme of arrangement route which means it is an 'all or nothing' deal. If it doesnÆt receive the requisite vote in favour of the deal, then it will not buy any shares.
Singapore has become a hub of activity for delisting of technology companies.
In March this year, Singapore Technologies Semiconductors (STS), a wholly owned Temasek subsidiary, made a $1.71 billion offer to buy out the 64.4% minority shareholders in STATS ChipPAC. However, STS could only achieve an 83% shareholding and the delisting fell through.
Then, in June, private equity firms TPG Capital and Affinity Equity Partners announced a deal to privatise United Test and Assembly Centre (UTAC) at a valuation of around $1.4 billion. The deal has not yet closed.
Both STATS ChipPAC and UTAC are in similar businesses as ASE Test.
ASE Test provides customers with a range of semiconductor testing services. It was incorporated in 1995 and went public on Nasdaq in 1996. The firm's primary operating facilities are in Taiwan with operations in America, Malaysia and China.
ASE was founded in 1984 and provides semiconductor manufacturing services with a leading position in providing a range of integrated circuit packaging. It is the flagship company of the ASE Group.
In April 2007, Carlyle abandoned a bid to delist ASE. The deal, which was announced in November 2006, had valued ASE at $6 billion but it was called off when Carlyle and ASE were unable to reach agreement on pricing. During the negotiation process, the deal raised a number of questions about the Taiwanese government's views on the privatisation of assets seen as core to the country, such as its large technology players.
"Citi completely buys into the competitive advantage that Taiwan's technology sector has created,ö says CitiÆs Shukla. This statement doesn't come as a surprise - Citi has advised on several large deals in the sector this year including Acer's plan to buy Gateway in the US for $710 million, and Lite-OnÆs $379 million acquisition of Perlos from Finland.
CitiÆs confidence in its Taiwanese clients, coupled with its willingness and ability to put its balance sheet to work, is translating into a leadership position in what is currently one of AsiaÆs most active M&A markets.