Temasek subsidiary aims to delist STATS ChipPAC

Singapore Technologies Semiconductors launches an offer to buy out minority shareholders in the semiconductor company, STATS ChipPAC, at a total outlay of up to $1.71 billion.
Singapore Technologies Semiconductors (STS), which is primarily an investment holding company and is a 100% Temasek subsidiary, has offered to buy out minority shareholders in STATS ChipPAC. STS currently owns 35.6% of STATS ChipPAC and will pay up to S$2.62 billion ($1.71 billion) for the 64.4% minority float it does not own. If successful, STS will delist STATS ChipPAC from the Singapore Exchange and NASDAQ, where it is currently listed.

STS has launched a tender offer under which it must corner 90% of the outstanding free float to delist. The advantage of this format is that STS can keep all shares it gets, even if it does not achieve the level required to delist. The STS offer is conditional upon STS achieving a shareholding of more then 50% in STATS ChipPAC.

STS is offering S$1.75 per share, representing an 18.2% premium over the traded price on February 28 and a 40.5% premium over the average closing share price during the past three months. The price translates to S$17.50 for each ADS. At this price, the total outlay for STS will be S$2.44 billion.

To incentivise shareholders to tender, STS is using a step-up strategy. STS will increase the price to S$1.88 per share if more then 57.96% outstanding shares are tendered taking its ownership to more than 93.56%. This strategy generally induces hedge funds and other stock market traders to mop up shares than tender them to ôearn a quick buckö. At the higher price the outlay for STS increases to S$2.62 billion.

STS has also conditionally offered to buy out the $115 million convertible notes due 2008 and $150 million 2.5% convertible notes due 2008. Moody's yesterday placed the Ba2 corporate family rating and Ba2 foreign currency debt ratings of STATS ChipPAC on review for possible upgrade. Ken Chan, MoodyÆs analyst, comments: ôThe potential cash redemption of such convertible notes would lower the company's financial leverage and improve its baseline credit assessment.ö

STATS ChipPAC was created in 2004 through a stock merger of SingaporeÆs ST Assembly Test Services (STATS) and US ChipPAC. STATS was then a semiconductor test and assembly service provider with about 50% of its revenues derived from testing while ChipPAC derived 85% of its revenues from chip packaging. Compelling reasons cited for the merger were expansion of manufacturing facilities to encompass all of the world's major foundry locations and the complementary nature of the two companyÆs customer bases and businesses. At the time, analysts had commented that STATS paid aggressively to catapult its position in the pecking order of chip companies and for ChipPACÆS state-of-the-art Shanghai facility.

Semiconductor companies have become flavour of the month for delisting, evidenced by multi-billion dollar transactions for Philips semiconductors business and Freescale in 2006 and, closer to home, the recent offer by the Carlyle Group to delist Taiwan-based Advanced Semiconductor Engineering (ASE). Semiconductor companies generate a lot of cash but investors tend to give them poor discounting, creating a rationale for them to be privately owned.

STATS ChipPAC shares have been doing well on bourses, in tandem with most chip manufacturers, bolstered recently by an encouraging outlook from major customer Analog Devices. STATS ChipPAC shares have reached their highest level since 2004. They traded up to S$1.81 yesterday on the Singapore Exchange, making it a question mark whether investors will tender at the offer price.

Goldman Sachs Singapore is advising STS. STATS ChipPAC is yet to appoint an advisor to the board and shareholders.
¬ Haymarket Media Limited. All rights reserved.
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