The ink of the future

Prime View's acquisition of E Ink Corporation may help make the Taiwanese company one of the next global tech powerhouses.

On a recent long weekend trip to Bali, like many a parent, I carried my son's Linus-like security blanket on the flight, as well as sweaters for the family in case the air-con was set to frigid, a half-dozen Matchbox-sized cars and Thomas the Tank Engine trains, snacks and juice for the wee one and colouring books and magic markers (mostly for me). There wasn't much room for a hard-back novel hastily purchased in the airport lounge as was the norm in the past; but there was space for my one-inch wide, notebook-sized Amazon Kindle.

If you've embraced e-books, chances are your carry-on luggage is a kilo or two lighter and the frequency of your recreational reading has increased because you're no longer bound by when you can get to a bookshop. It takes seconds to download a book, and so you do. If you own one of Sony's E-Readers or the Kindle, you owe a thank you to Credit Suisse.

The Asia team at the Swiss bank has been a champion of Prime View International, a Taiwanese company that is a leading provider of electronic paper-display modules. Founded in 1992, Prime View is a subsidiary of the Yuen Foong Yu Group, which is a Credit Suisse client. Prime View's initial aim was to manufacture best-in-class thin film transistor liquid crystal display, or TFT-LCD, products. If you don't speak tech, don't worry, here's what's key: TFT-LCDs are used in everything from your television set, computer monitor, mobile phone and personal digital assistant, to the navigation system in your car. Given the extent to which we embrace such tools and toys, specialists estimate the production value of TFT-LCDs will grow by 20% a year. Of course, there's plenty of competition in this space.

So Prime View needed to grow. Its first step in that direction came in 2007, when Credit Suisse acted as the sole bookrunner on Yuen Foong Yu's $100 million exchangeable bond, which gave the parent company cash to go on a buying spree. Within months, Prime View was able to spend $285 million to buy a rival Korean company, BOE-Hydis, out of bankruptcy. Once again, Credit Suisse was the sole adviser.

"This was a deal for capacity," explained Joe Gallagher, head of M&A, Asia Pacific, for Credit Suisse. "It positioned Prime View for dominance in the e-reader market."

But new technology always chews through cash -- and this story is no exception. The e-reader is the book, if you will, but you still need the print. E Ink Corporation had been producing just that and was a company that worked together with Prime View on many products.

Readers made with e-ink have a paper-like, high-contrast appearance that is easier on your eyes than reading your computer screen and boasts ultralow power consumption -- on an e-reader the power is primarily spent on turning pages.

E Ink was founded in 1997 based on research started at the MIT Media Lab, which itself has an interesting pedigree. The Media Lab was widely popularised in the late 1990s by tech publications such as Wired and Red Herring, which wrote about practical inventions. Not surprisingly, given the publicity surrounding where E Ink was born, the company attracted venture capitalist attention. But that was more than a decade ago, and the VC folks needed to exit those investments. So E Ink was up for sale. Prime View was a business partner, so naturally its executives found out about the sale. And they were interested.

But Prime View was tapped out. Once again, Credit Suisse came into the picture and ran the books on a sole basis for a $165 million global depository receipt (GDR) offering, which helped raise money for Prime View's $215 million acquisition of E Ink.

"We helped them through relatively tough times when other investment banks might not have been interested," said Jan Metzger, co-head of technology coverage, Asia Pacific, at Credit Suisse.

Getting both the GDR and the M&A deals done were not easy -- the bankers had to sell the e-ink story. Metzger and his colleagues had obtained a line of credit from within Credit Suisse to fund the M&A deal if the GDR didn't fly, but in the end that was not necessary. As for the merger itself, there were more than 150 investors in E Ink who needed to be convinced that they should sell to Prime View. As Metzger put it: "I remember doing a lot of driving up and down the eastern seaboard of the US selling that story."

"Credit Suisse has been our trusted partner over a number of years and transactions now. They understood the tremendous potential of e-paper products from a very early stage," said Scott Liue, chairman of Prime View. "We have been confident for years that e-paper would, over time, transform the way that media is consumed. But Prime View needed to acquire E Ink and finance that acquisition in order to position ourselves as the clear leader in this sector. Those were challenging assignments at a time of global turmoil and Credit Suisse really proved its commitment to us and to new technology with the work that it did to turn our vision into a reality," he added.

It's not surprising that Credit Suisse's Asia team would be the bankers who believed in Prime View and E Ink's potential, and were willing to put their bank's cash to work. Credit Suisse has a heritage in tech -- consider that Vikram Malhotra, the co-head of the investment banking department for Asia-Pacific, used to head the technology, media and telecoms business in Asia.

"People in various parts of the business have tech backgrounds," says Metzger. "So that allows us to call on smaller businesses because the firm understands their growth potential."

Prime View's growth potential is largely now thanks to e-ink rather than its initial TFT-LCD business model. And it's handling that precious commodity carefully. It has "kept the E Ink Corporation brain trust", as Metzger put it -- the purchase of E Ink isn't designed to steal ideas or fire scientists in the US to replace them with lower-paid copy-cat designers in Taiwan. Rather, Prime View is respecting E Ink's strength and is leveraging the fact that the two literally go together like ink and paper. Prime View's acquisition of E Ink, therefore, stands out as an example of a strategic cross-border M&A deal that should not just be lauded for its execution, but also for being well-handled after the bankers have left the room. Taiwanese outbound M&A into the US is rare, this is worth emulating.

The potential for Prime View is huge and people like Metzger, who has both the Sony E-Reader and the Amazon Kindle and uses them for multiple purposes, is the future. Metzger receives his morning newspapers on e-readers, sends his corporate work to the devices rather than printing them out, and reads novels on them. If more people embrace the technology, Prime View stands to gain.

To the critics who say 'I won't use this; I prefer the touch and feel of a magazine or a newspaper or a book,' he says: "There were folks who once said: 'Why use email when you can fax? Why use an ATM when you can talk to a teller?' New technology is often scoffed at first, but then widely embraced." To the critics who say the Apple's i-Pad will crush Kindle and Sony -- try out all of these products. You will probably decide you like Apple for many of its other applications, such as watching a short video, but not necessarily for the ease of reading an entire book.

More importantly, Prime View doesn't have to worry about which e-reader manufacturer ends up with the biggest market share -- as long as that reader uses e-ink, Prime View wins.

And there are future potential uses for e-ink that will pay off for Prime View. You could use e-ink for wallpaper in a room, changing it at your leisure. You could use it on an identification card, so that your photo changed every few days as a form of increased security. You could use it to make more pleasing luxury watch displays or for price tags in supermarkets that can be changed wirelessly. It's a new technology with plenty of potential and one that could help make a hitherto relatively unknown Taiwanese company become a global player, in no small part thanks to its bankers.

This story was first published in the April issue of FinanceAsia magazine.

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