Globalwafers CEO gives her top M&A tips

Doris Hsu talks about identifying acquisition targets, post-merger integration and share tips on how to best manage a multinational business.

Taiwan’s Globalwafers has embarked on an exciting journey of overseas expansion since founding in 2011.

The Hsinchu-headquartered company is now the world’s third largest manufacturer of silicon wafers after acquiring its US rival SunEdison Semiconductor late last year. The once little-known Taiwanese company, set up with registered capital of $150 million, is now a global business worth close to $3.5 billion, or 23 times more than what it was worth six years ago.

However, its road to success has not been smooth all the way.

When the company announced its intention to acquire SunEdison Semiconductor in August last year, chief executive officer Doris Hsu was making a huge bet.

It was a huge bet on monetary terms. The Hsinchu-headquartered wafer manufacturer paid $683 million for Missouri-based SunEdison Semiconductor, making the transaction one of the biggest outbound Taiwanese corporate acquisitions in recent years. It was a big bite for Globalwafers, because the sum was close to its market capitalisation of $731 million at that time.

But more so, Hsu has made a bet to turn around a deeply loss-making business acquired from a US company that has just filed for bankruptcy a few months earlier. The business has been in the red in five of the past six years and booked a total loss of $931 million during the period.

For that reason, the company was criticised by some analysts on the ground that the transaction was highly dilutive and would substantially decrease the company’s earnings per share.

But Hsu was never had any doubt on the decision.

Complimentariness

In an interview with FinanceAsia, Hsu said she was confident that the transaction would be successful in the first place because the two businesses complement each other. “Our first priority when accessing a target is whether it will complement with our existing business,” Hsu told FinanceAsia in an interview. 

Globalwafers has picked loss-making SunEdison Semiconductor over other potential targets, including Germany’s Siltronic AG and South Korea’s LG Siltron, because the US company had minimal overlap in products, customers as well as geographical presence.

“To put it simply: what they have, we don’t; what we have, they don’t,” Hsu said.

SunEdison Semiconductor and Globalwafers were already leaders in the global semiconductor industry before the merger, ranking fourth and sixth in terms of total manufacturing capacity.

But the two companies focus on wafers of different specifications. Globalwafers specialised in making 8-inch silicon wafers, while most of SunEdison Semiconductor’s production lines are designed for 12-inch silicon wafers.

After merging with SunEdison Semiconductor, Globalwafers has nearly quadrupled its 8-inch wafer production capacity to 750,000 units from 200,000 units.

The different product focus allows Globalwafers to pursue synergies on product diversification and new technology development, among others, Hsu told FinanceAsia.

Naturally, the two companies have little overlap in customers. Globalwafers counts electronics manufacturers including Toshiba, Fujitsu, Panasonic and Samsung Electronics as its main clients, while SunEdison Semiconductor mainly supplies its wafers to integrated circuit foundries such as Taiwan Semiconductor Manufacturing Corporation and STMicroelectronics.

The two businesses have also minimal overlap over product distribution. Taking over SunEdison Semiconductor allows Globalwafers greater access into the European Union and South Korea, where it has a lower market share compared with other developed countries.

“When we target a company, we don’t just look at the business on a standalone basis but also whether there are any synergies to be exploited with our own business,” Hsu said. “Complimentariness has always been our top priority.”

These synergies are yet to be exploited in full but Globalwafers has already showed signs of turning around the new business.

Three months after consolidating SunEdison Semiconductor into its balance sheet and absorbing the company’s estimated $222 million loss, Globalwafers still managed to book a 13% increase in net profit to $32.9 million in the first quarter.

Liu Pei-chen, a technology researcher with Taiwan Institute of Economic Research, said the addition of SunEdison Semicondutor could help Globalwafers compete with leading Japanese silicon wafer manufacturers and improve its technology in producing larger wafers.

Turnaround specialist

Globalwafers and its parent company have a history of buying loss-making assets and turning them into profitable businesses.

In 2012 Globalwafers acquired Covalent, a mid-size Japanese wafer maker that struggled to be profitable for five years before being acquired. Last year, it acquired the silicon business of Denmark’s Topsil, which recorded a loss of $14 million in the first quarter alone.

The Taiwanese company also owns the assets of US wafer maker GlobiTech through an asset injection from its parent Sino-American Silicon Products, which acquired the business after it booked operational losses for seventh consecutive years.

Globalwafers has a formula of restructuring loss-making businesses. For one, the company focuses on reducing costs by cutting unnecessary expenses without severely affecting its day-to-day operations.

For SunEdison Semiconductor, the first cost-cutting measure was to delist the company from the Nasdaq exchange to save the listing expenses of about $10 million per year.

Debt restructuring was also a priority because SunEdison Semiconductor’s borrowing cost has been on the rise as its parent SunEdison ran into liquidity problems. The company’s annual interest expense rose drastically to $14 million last year from $800,000 in 2013.

With the backing of Globalwafers, Hsu said SunEdison Semiconductor will seek to roll over its existing debt that bears an average interest cost of over 6% with cheaper borrowings.

Globalwafers is also aiming to reduce SunEdison Semiconductor’s operational cost by sharing its research and development, marketing as well as personnel training expenses.

These efforts to integrate the two businesses are recognized by public investors as they gradually turn positive towards the acquisition. Globalwafers shares started a seven-month rally since early November and by the end of May, the stock was worth three times more.

Post-merger integration

Due to their relatively smaller size, Taiwanese companies are more often acquisition targets rather than buyers. As such, Globalwafers’ acquisition of SunEdison Semiconductor stands a unique position in Taiwan’s corporate history, because it is one of the few cases of a Taiwanese company acquiring an overseas business of scale.

In terms of post-merger integration, Hsu said Globalwafers has taken an approach to look at the big picture instead of interfering SunEdison Semiconductor’s daily operations.

“SunEdison Semiconductor has great technology and production lines but the business just needs to be run in an effective way”, Hsu said. “As a new owner, we act as an advisor to oversee the business and help run it more smoothly and effectively.”

Hsu stressed in importance of respecting local cultures in bringing together a global business. As a result, retaining SunEdison Semicondutor’s senior management and local expertise was the first and foremost action after integrating the new business.

“Our business is run by locals. Our Japanese business is led by Japanese, our Korean business run by Korean, and the US business is no different,” Hsu said. “Their knowledge of the local markets is irreplaceable and as an outsider, we need to make the most out of it and run the business in ways that suit local markets.”

After acquiring the new company, Hsu spent most of her time connecting different parts of the business, communicating between teams to ensure they start to understand and learn from each other.

Hsu’s business philosophy has helped her run a multinational business that operates in 10 countries across Asia, Europe and the US.

 

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