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Mooted Chinese offer for Micron undervalues chipmaker - analysts
July 14, 2015 / 4:27 PM / 2 years ago

Mooted Chinese offer for Micron undervalues chipmaker - analysts

July 14 (Reuters) - China’s Tsinghua Unigroup Ltd would need to pay as much as $38 billion to buy Micron Technology Inc , analysts said - assuming that the U.S. government approved the purchase of last U.S. maker of dynamic random access memory (DRAM) chips.

State-backed Tsinghua Unigroup is considering making a bid of $21 per share for Micron, valuing the Idaho-based company at $23 billion, people familiar with the matter said on Monday.

Micron’s shares rose as much as 12 percent to $19.79 in morning trading on the Nasdaq on Tuesday.

China has been expressing strong interest in building up its domestic chip industry, and buying Micron would be a major coup.

An acquisition of Micron would give China access to both DRAM and NAND memory chips, which are used in personal computers and to store music, pictures and other data on smartphones and mobile devices.

The country consumes $10-$11 billion of DRAM chips annually, according to JP Morgan analysts.

Any deal, though, would need a green light from the Committee on Foreign Investment in the United States (CFIUS), which would examine the national security implications.

“DRAM and 3D NAND manufacturing technologies are strategic for China but difficult to access,” Jefferies analysts said in a client note.

“Leading-edge high volume memory design and manufacturing (intellectual property) is closely held by a handful of companies, none of which we think would want a new entrant from China to affect supply/demand fundamentals unfavorably.”

Tsinghua Unigroup has been at the forefront of China’s efforts to expand its chip industry.

The company bought Chinese mobile chipmakers Spreadtrum and RDA Electronics in the last two years. Last year, Intel Corp bought into Tsinghua with a $1.5 billion investment.

“With estimated 21 percent market share in DRAM, 16 percent market share in NAND, and solid technology in both markets, Micron would give Tsinghua a solid presence in both areas of memory,” Morgan Stanley analysts said in a report.

However, several analysts said an offer of $21 per share would severely undervalue Micron, and there could be counterbids from companies such as SanDisk Corp and South Korea’s SK Hynix Inc.

J.P. Morgan analysts said a $27-$29 per share offer would be more realistic, while Needham analysts said the company was unlikely to sell itself for less than $35 per share, implying a deal value of about $38 billion.

Micron’s shares hit a more-than-13-year high of $36.59 in December but have since fallen sharply due to oversupply in the DRAM industry and sluggish demand for PCs. (Editing by Sayantani Ghosh in Bengaluru and Ted Kerr)

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