Globalwafers aims high with SunEdison purchase

The Taiwanese company's CEO tells FinanceAsia the rationale behind its $683 million deal to acquire SunEdison Semiconductor.
Globalwafers makes silicon wafers used in the production of computer chips
Globalwafers makes silicon wafers used in the production of computer chips

Taiwan's Globalwafers sees the acquisition of US rival SunEdison Semiconductor as a fast and comparatively inexpensive way to propel itself into the global big league, chairperson and CEO Doris Hsu says.

In an interview with FinanceAsia after the $683 million deal was announced on Thursday, Hsu said the decision to buy the Missouri-based company – which will make Globalwafers the world's third-largest silicon wafer manufacturer – was much cheaper and more efficient than attempting to scale up through organic growth.

“According to our own evaluation, it would cost at least $2.5 billion if we were to grow organically and reach the production scale that SunEdison can offer us,” Hsu told FinanceAsia. “Now we are literally paying a quarter of that amount to grow through acquisition.”

Globalwafers also saved time, Hsu said. A large-scale expansion of the Taiwanese company's production capacity would require new factories, which would take years to build, while new sales channels would also take time to develop.

“We expressed our interest to SunEdison’s board of directors in December last year and the deal is expected to close this year. The entire process takes only a year, which is much faster than growing organically,” Hsu said.

These are key reasons Globalwafers is willing to acquire SunEdison, even though the consideration is close to the Taiwanese company’s current market capitalisation of $731 million.

Hsu added that the company was willing to take on such a big deal because it was almost debt-free, which allowed it to leverage bank borrowings to finance the acquisition.

Hsinchu-headquartered Globalwafers will settle the payment using a syndicated loan provided by Bank of Taiwan, Hua Nan Commercial Bank, Mega International Bank, Taipei Fubon Bank and Taishin International Bank.

According to a joint statement by the companies on Thursday, Globalwafers will pay $12 per share to fully acquire Nasdaq-listed SunEdison Semiconductor. The offer price represents a 44.9% premium on the stock’s Wednesday close and a 78.6% premium to its 30-day average closing price.

The $683 million payment will also cover SunEdison's existing debt of approximately $200 million.

Strategic proposition

SunEdison has been losing money in recent years, but Hsu said it was selected as a target over Germany’s Siltronic AG and South Korea’s LG Siltron because the US company had minimal overlap in customers, products and production capacities with Globalwafers.

Globalwafers supplies silicon wafers to electronics manufacturers including Toshiba, Fujitsu, Panasonic and Samsung Electronics, while SunEdison’s key clients include Taiwan Semiconductor Manufacturing Corporation and STMicroelectronics.

Upon completion of the transaction, Globalwafers plans to restructure SunEdison to turn the business around, Hsu said. The focus will be on reducing its procurement cost as well as its sales, general and administrative expenses, Hsu told FinanceAsia.

“We hope to increase EBIT [earnings before interest and tax] margin to 13% from 8% by improving SunEdison’s supply chain. Also, the new business can cut part of its spending by sharing Globalwafers' capital expenditure,” Hsu said.

Globalwafers will also seek to save on the overheads that have dragged SunEdison into a loss. It will delist the company on completion, saving $10 million in expenses from the Nasdaq listing. In addition, it will seek to roll SunEdison’s debt, which is borrowed at an interest rate of almost 6% per year, into new borrowings that bear lower rates.

Taking over SunEdison will offer Globalwafers greater access into the European Union and South Korea, where it has a lower market share compared with other developed countries.

Europe was Globalwafers' fourth largest market, accounting for 11% of revenue last year, while South Korea’s contribution was only about 1%, according to Hsu. Japan, Taiwan and the US were the biggest markets, accounting for 38%, 24% and 19% respectively of the company’s top-line last year.

SunEdison’s manufacturing facilities are located in Taiwan, Malaysia, South Korea, Italy, Japan and the US.

Global consolidation

The transaction is yet another example of global consolidation in the semiconductor industry as bigger companies seek to acquire smaller peers to expand capacity.

In June, Dutch semiconductor company ASML offers to acquire Taiwan’s Hermes Microvision for $3.1 billion in one of the largest Taiwanese inbound M&A transactions. That came a month after Taiwanese chip assembling firms Advanced Semiconductor Engineering and Siliconware Precision Industries decided on a merger.

On Semiconductor, one of Globalwafers’ key clients, offered to acquire US chipmaker Fairchild Semiconductor earlier this year as a Chinese consortium was forced to withdraw its competing offer amid antitrust concerns.

Globalwafers is now the world’s sixth largest maker of silicon wafers, with a 6% share globally. Upon completion of the SunEdison acquisition, the company is expected to become the world’s third largest player with an estimated market share of 20%, trailing only Japan’s Shin-Etsu Chemical and Sumco Corporation.

Regulatory approval

The transaction is subject to approvals from SunEdison shareholders and the High Court of Singapore. It will also require approvals from Taiwan’s Securities and Exchange Commission (SEC) and Investment Commission (IC).

In addition, Hsu said the company would make voluntary filings to the Committee on Foreign Investment in the United States (CFIUS) as well as antitrust regulators in Germany and Austria.

Globalwafers' acquisition of SunEdison is the eighth largest outbound M&A deal in Taiwan's history, according to Dealogic.

Nomura is the buyside advisor to Globalwafers while Barclays advises SunEdison Semiconductor.

¬ Haymarket Media Limited. All rights reserved.