Taiwanese semiconductor companies have become the latest targets in a global rush for technology assets, with two semiconductor giants receiving separate buyout offers from business rivals.
On Monday, semiconductor packaging and testing company Advanced Semiconductor Engineering (ASE) tabled a proposal to acquire all the shares it does not already own in rival Silicon Precision Industries (SPIL) for NT$55 ($1.68) per share. The company is making a concurrent offer to buyout all of SPIL’s American Depositary Receipts at NT$275 each.
The acquisition price values SPIL at approximately $4 billion. ASE will be required to pay approximately $3.2 billion for the 75% stake it does not already own.
ASE’s offer followed an earlier announcement on Monday by US chip maker Micron Technology that it would purchase the 66% of Taiwanese wafer manufacturer Inotera Memories it doesn’t already own for NT$30 per share, or a total consideration of $4 billion.
The deals underscore the acceleration of semiconductor industry consolidation amid slowing growth in the mobile communication industry. Global technology companies are looking to mergers to maintain their competitiveness and expand market share.
Global semiconductor sales are expected to grow slightly by 0.9% this year, showing sharply from a 10.5% year-on-year growth in 2014, according to technology research agency TrendForce.
Despite rising demand for automotive components, weak demand for personal computers and mobile devices is likely to drag down global semiconductor sales by 0.6% next year to around $329 billion, the agency estimates.
Chinese technology companies have become particularly aggressive acquirers of overseas chip-making companies, ever since the government unveiled plans to improve self-sufficiency in the semiconductor space last year.
For years foreign companies including Samsung Electronics, Qualcomm and Intel were the key semiconductor suppliers to Chinese electronics manufacturers. But in October 2014, Beijing established the National Integrated Circuitry Industry Investment Fund, and encouraged local companies to acquire foreign semiconductor companies by providing capital support to them so the country could reduce its reliance on foreign supply.
Since then many Chinese companies have hunted for overseas manufacturers in various stages of the semiconductor value chain.
A month after the establishment of the state fund, Shanghai-listed Jiangsu Changjiang Electronics Technology offered to purchase Singaporean semiconductor packaging company STATS ChipPac from Temasek for $1.8 billion. The deal was finalised in June.
Then in late April, a China consortium comprising Hua Capital Management, Citic Capital Holdings and Goldstone Investment tabled a $1.9 billion offer to acquire US digital imaging solutions developer OmniVision Technologies. The transaction, which is subject to regulatory approvals, is expected to close in the third or fourth fiscal quarter of fiscal year 2016, according to OmniVision’s statement.
“A lot of Chinese electronics manufacturers are seeking acquisitions of foreign semiconductor companies to strengthen their supply chains,” Andrew Chen, an industry analyst with Yuanta Securities in Taiwan, told FinanceAsia.
Protecting local assets
In face of this growing foreign acquisitive interest, Taiwanese chip manufacturers have begun merging to make themselves more difficult targets.
Before the ASE offer, SPIL had entered into a share placement agreement to sell new shares equivalent to 25% of its enlarged share capital to China’s Tsinghua Unigroup. The transaction is said to be the first step towards a full acquisition of the Taiwanese semiconductor assembly company.
However, with its offer ASE has effectively pre-empted such plans. It noted its "sincere belief in the need for Taiwan's semiconductor packaging and testing industry players to actively seek opportunities for cooperation and resource consolidation … in the face of intensified global competition and emerging competitors”, in a statement about the acquisition offer.
Should ASE successfully merge with SPIL, the two will create an entity that accounts for 52% of the revenue and 83% of the profit of the top five global semiconductor manufacturers, according to JP Morgan analysts. That will increase the difficulty of any subsequent hostile offers from foreign companies.
Chinese companies are also acquiring foreign companies to gain access to advanced technologies in chip making.
This has prompted defensive M&A bids from some US companies. Many Taiwanese companies have shared their technology with their US counterparts, and these companies want to prevent Chinese acquirers from gaining access to their technological knowledge.
This situation is intensifying as the Taiwanese government begins to take a more relaxed stance towards Chinese investments in local semiconductor companies, according to TrendForce analyst Avril Wu.
Micron’s desire to acquire Inotera may well stem from such concerns. Wu noted that if Tsinghua Unigroup or another Chinese technology company acquired Inotera, it might be able to obtain Micron’s technologies and production capabilities.
“By acquiring the whole company, Micron will not only eliminate this political and business uncertainty but will also have complete control over any collaboration with its new subsidiary foundry,” Wu told FinanceAsia.
Global tech rush
The deals were announced by the end of a year when global mergers and acquisitions in the technology space are busier than they have been in years.
According to data provider Dealogic, global technology M&A in 2015 has more than doubled from last year to $697.5 billion. In Asia ex-Japan the figures have also grown 1.21 times to $171.4 billion.
In the largest tech M&A ever, US computer maker Dell made a $67 billion bid for digital storage company EMC in October. In the same month, Chinese tech start-ups Meituan and Dianping agreed to a merger to form the country’s largest online-to-offline company in a deal estimated to worth $15 billion.
If completed, Micron’s $4 billion bid for Inotera would be the largest acquisition of a Taiwanese technology company for over three years, surpassing MediaTek’s $3.8 billion offer for MStar Semiconductor in 2012.