Sanan Optoelectronics to buy GCS for $226m

Chinese LED maker’s offer for the US firm is yet another example of China’s huge acquisitive interest in foreign semiconductor assets but may face regulatory hurdles.

China’s huge acquisitive interest in foreign semiconductor business does not seem to be cooling down despite a slowing domestic economy. In fact, Chinese enterprises may now have more pressure to adopt the “go-abroad” strategy to stimulate growth.

Shanghai-listed Sanan Optoelectronics, China’s biggest LED manufacturer by production volume, is the latest company to response to Beijing’ call to buy foreign semiconductor assets. On Friday, the company offered to fully acquire California-based semiconductor wafer maker Global Communication Semiconductors for $226 million.

According to its announcement on the Shanghai stock exchange, Sanan intends to purchase the company by acquiring its Taiwan-listed holding firm GCS Holdings, including all common shares and two batches of local convertible bonds due 2018.

The offer was made after GCS closed at an all-time high of NT$102.5 Thursday. The price tag of $226 million represents a 24.5% premium on GCS Holdings’ market capitalisation of $181.5 million as of Thursday, or roughly 25.8 times the Taiwanese company’s last reported earnings.

Sanan said the acquisition will provide the company with new overseas clients as well as international management standards. GCS would also provide a good platform for Sanan to further expand overseas, according to the exchange filing.

Aggresive acquirers

Over the last few years, China's technology-focused asset management firms have been very aggressive in taking stakes in foreign chipmakers, as Beijing aims to reduce reliance on overseas semiconductor supply for the country’s electronics and automobile manufacturing industries.

Some of the landmark deals include Jiangsu Changjiang Electronics Technology’s $1.8 billion acquisition of Singaporean chip packaging company STATS ChipPac last year, Uphill Investment’s $600 million buyout of American chip maker Intergrated Silicon Solution, as well as Tsinghua Unigroup’s $1.7 billion offer for a 25% stake in Taiwanese chip packaging company Silicon Precision Industries.

While most of these outbound M&As are backed by state-owned companies or asset managers, Sanan’s offer for GCS is the first major foreign acquisition attempt by a private company in the semiconductor industry.

GCS’ core optoelectronics business, which accounted for 64% of its revenue last year, will fit into Sanan’s LED production business and provides a stable source of chip supply. Meanwhile, GCS’s radio frequency integrated circuit production sector would potentially allow Sanan to tap into China’s fast-growing 4G mobile network.

But analysts suggest the transaction may face regulatory hurdles in the US and Taiwan because some of GCS’s production lines are related to military and national security products.

Last month, Fairchild Semiconductor of the US rejected a $2.6 billion joint bid from China Resources Microelectronics and Hua Capital, claiming there was a high possibility that it would fail to obtain US regulatory approval because of national security concerns.

Market participants showed an apparent lack of confidence in the Sanan-GCS deal, sending GCS shares down 5.4% Friday, despite a 0.5% gain in the TWSE index.

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