ANALYSIS | Tsinghua Unified Ltd. has made a $23 Billion Dollar bid to acquire Boise, Idaho based Micron Technology Inc. If the deal goes through it will be the single biggest Chinese takeover of a US company – and the last remaining US supplier of DRAM memory.
Tsinghua is willing to bid $21 Dollars a share in a letter of intention presented to Micron according to a report in the Wall Street Journal. “While Micron does not comment on rumors or speculation, we can confirm that we have not received an offer,” spokesman Dan Francisco said.
Low Ball Offer
The offer is 3.9 times Micron’s estimated earnings before interest, taxes, depreciation and amortisation for the year ending August, compared with the median 14 times EBITDA for 81 semiconductor deals over the past five years, according to data compiled by Bloomberg. For transactions valued above $10 billion, the median is 25 times EBITDA.
18th Party Congress Decisions
China, at the nations last “Third Plenum of the 18th Party Congress,” in November 2013 made the decision to widen the push to build the nation’s internal sourcing of semiconductors – the planning phase according to sources ended earlier this year in March. China has not been able to develop semiconductor memory technology fast enough to supply their own internal demands let alone export demands and would have to acquire the technology through acquisitions. A Hong Kong source added “that Tsinghua realized that a “decision of opportunity” had evolved after Micron reported a 39% drop in profit for the third fiscal quarter ended June 4. The subsequent fall of Micron’s stock price into the $17 Dollar range provided the necessary enticement for the $21 Dollar per share offer price”. The same source added, “Tsinghua has not lined up any source financing prior to launching the offer”.
CFIUS Approval Requirement
Any subsequent deal will face close scrutiny by U.S. Government officials in Washington. Unquestionably, a review by the Committee on Foreign Investments in the United States would be convened consisting of a panel of representatives from more than a dozen departments and agencies across the U.S. government.
According to the WSJ, “CFIUS, as the group is known, is charged with determining whether any foreign acquisitions or investments pose a security threat. But the process for determining whether a transaction is subject to CIFIUS review isn’t clear-cut. In many cases, firms involved with a transaction that might raise security concerns are expected to notify the committee, which is chaired by the Treasury Department, and that kicks off a review. However, in some cases, when a transaction isn’t referred to the government by the companies involved, government officials can choose to launch an inquiry of their own.
If CFIUS decides a deal poses a security threat, the transaction can be blocked. In other cases, the prospect of a negative CFIUS ruling has caused companies to drop a transaction on their own.”
Tsinghua Unigroup is the investment arm of Tsinghua University, which counts the country’s President Xi Jinping and former President Hu Jintao among its alumni.
Beijing-based Tsinghua Unigroup already has links to major U.S. companies. It acquired a controlling stake in Hewlett-Packard Co.’s China networking equipment unit in May. Intel Corp. announced last year it would buy a 20% stake in Tsinghua Unigroup for $1.5 billion.
Tsinghua Unigroup, which was founded in 1988 by China’s elite Tsinghua University, became China’s largest chip design firm in 2013 after acquiring two of the country’s largest mobile-chip firms, Spreadtrum Communications and RDA Microelectronics.
It is well known that China has been shopping for memory. The story line was that they were gathering up the likes of ISSI which still requires pending CFIUS approval.
If China wanted to get the U.S. Government’s attention they now have it. CFIUS is very concerned about maintaining necessary national defense assets from foreign control and ownership. The almost humorous part of this situation is that CFIUS is even more opaque than the Communist Party is in Beijing.
Conversations with several analysts indicate that the offered bid is far from being acceptable – it is almost insultingly low as if they planned to actually pay more following negotiations. The analysts all felt that Micron’s fair market value was well above the $21 offer.
There is general agreement that Micron is nearing an announcement of several near term technologies that will materially affect the share price and that the timing of Tsinghua’s offer prior to these announcements is highly suspect in several regards.