ASML makes $3.1b offer for Hermes Microvision

Dutch semiconductor firm’s jumbo offer marks a continuation of foreign interest in Taiwanese chip manufacturing assets.

ASML is to acquire Taiwan’s Hermes Microvision for NT$100 billion ($3.1 billion), the Dutch semiconductor company said on Thursday, providing further evidence of cross-border demand for Taiwanese technology assets as the global chip industry consolidates.

Veldhoven-headquartered ASML, which has a market capitalisation of $41 billion, is offering to buy HMI shares at NT$1,410 per share. That is 31% above HMI's 30-day volume-weighted average price, 50% more than the 60-day VWAP, and 16.5% over HMI’s NT$1,210 close on Wednesday.

Following news of the offer, HMI's share price surged by the Taiwan stock exchange's daily 10% maximum to NT$1,330.

ASML will settle the transaction through a combination of cash, equity, and debt financing. The Dutch company will pay €750 million ($846 million) in cash and fund another $1.7 billion by raising new debt. It will also issue $564 million in new shares to HMI's parent company Hermes-Epitek as well as to some of HMI’s officers, who own a combined 48% in the company. 

Dilution to existing ASML shareholders will be minimal because the 5.9 million new shares account for only 1% of the company’s outstanding share capital.

The transaction is expected to complete by the fourth quarter, at which point HMI will be delisted.

Credit Suisse is advising ASML while Goldman Sachs is advising HMI. Jones Day is the legal advisor.

Value proposition

Both ASML and HMI are players in the upstream of the semiconductor value chain. While ASML is the world’s largest manufacturer of the lithography machines used in the production of computer chips, HMI is a developer of metrology equipment, which is used to identify defects during the chip-making process.

“It makes a lot of industrial sense to merge the two companies given that their products complement each other,” a source familiar with the transaction told FinanceAsia. “ASML uses HMI-developed machines to examine the output from its own products, so [the acquisition of HMI] is like adding another division to ASML’s existing production.”

The fact that ASML and HMI have been in strategic partnership for two years makes it a “natural progress” for a merger, said the source familiar with the situation.

“This acquisition is intended to make a strong product offering even stronger,” Peter Wennink, ASML’s president and chief executive officer, said in a statement. “Our metrology technologies are complementary, and when combined offer the chance to significantly improve process control, and hence yields, for our customers.”

The acquisition of HMI will create a new class of products that helps better position the company to address a potential €2.3 billion market in the chip qualification, monitoring, and control industry by 2020, ASML said in a corporate presentation.

ASML’s price tag for HMI values the Taiwanese company at 35 times forecast 2016 earnings and 47 times earnings on a trailing twelve-month basis, which is considered lofty in the semiconductor industry.

However, the managers of ASML believe the potential synergies of the acquisition are far more important that the offer price, the source familiar with the situation said.

Moreover, HMI's share price is broadly half what it was in May last year, when it struck an all-time high of NT$2,530. So the deal put together by ASML is a lot cheaper than it might have been just a year ago.

The transaction is subject to approvals from HMI shareholders and Taiwan’s Investment Commission, as well as by antitrust regulators in Taiwan, Korea, and Singapore, HMI said in a press conference on Thursday.

Global tech rush

ASML’s offer for HMI underscores the huge foreign interest in Taiwan technology assets, one of the pillars of the island’s economy.

China has been one of the most aggressive buyers after Beijing called for improved self-sufficiency in various stages of the semiconductor value chain.

Tsinghua Unigroup, a state-owned asset management company, purchased a 25% stake in Taiwan’s Silicon Precision Industries last year and attempted to fully acquire the company earlier this year. It also bought a 25% interest in Taiwanese chip packaging company Powertech Technology for $600 million. 

In Taiwan’s biggest ever inbound acquisition, US chipmaker Micron Technology offered to purchase Taiwanese wafer manufacturer Inotera Memories for $4 billion late last year. 

At $3.1 billion, ASML’s acquisition of HMI will be Taiwan’s second-largest inbound M&A transaction.

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