Tsinghua Makes $23B Bid For Micron

In what would likely be the largest takeover of a U.S. company by a Chinese firm, China’s state-owned Tsinghua Unigroup has put in a bid to buy memory giant Micron Technology for $21 a share or $23 billion, according to the Wall Street Journal. The deal is expected to be receive high scrutiny.

Tsinghua Unigroup is the largest state-owned chip design company in China, according to Henry Guo, China internet and media analyst at W.R. Hambrecht + Co./Summit Research. The company was founded in 1988 by Tsinghua University, and has been active in M&A in recent years. After acquiring Spreadtrum Communications and RDA Microelectronics, Tsinghua Unigroup became the largest chip design company in China. Last year, Intel spent $150 million to acquire a 20% share in the company that, in May, purchased a $2.3 billion majority stake in Hewlett Packard’s Chinese server, storage and technology unit.

Guo noted that as the Chinese government continues to support its IC technology, Tsinghua has received multiple fundings from the government to help it grow. Earlier this year, the company received RMB10B ($1.6 billion) from China IC Industry Investment Fund. The company also disclosed that State Development Bank will cooperate with it to finance up to RMB20B($3.2 billion) over the next 5 years.

This is not the only recent attempt by China-backed companies or investment firms  to buy U.S.-based memory companies. In March, a Chinese consortium of investors led by Summitview Capital entered into a definitive merger agreement to acquire U.S. memory maker Integrated Silicon Solution Inc. (ISSI). The proposed transaction values ISSI’s equity at approximately $639.5 million.

Chinese companies also acquired Omnivision, STATS ChipPAC, WiSpry, among others. Rumors are flying that AMD is also being sought.

Semiconductor market research company Objective Analysis said in an analysis note that it is not at all surprised that a Chinese firm with government backing plans to enter the DRAM and NAND markets, but did not anticipate for it to occur through an acquisition. “We have been telling our clients for the past few years that either China or India would create a new DRAM/NAND manufacturing company, especially since memory chip makers have enjoyed a long period of profits, and this usually motivates outsiders to invest in new DRAM makers,” the analysts wrote.

It is even being said that China’s upcoming five-year plan would include taking a 20% share of the memory chip business, which last year would have represented some $12 billion in revenues, Objective Analysis continued. “It is very common for countries with heavy industry to enter into the prestigious semiconductor market during an extended upturn. Memory chips are a good fit for a heavy industry manufacturing mindset, since both DRAM and NAND flash are undifferentiated commodities which are bought and sold based solely on price.  Such commodities generally require little more than manufacturing prowess to succeed.”

What Tsinghua would get
Micron, through a series of acquisitions of its own, not only has its original wafer fabs in Boise, Idaho. Micron also owns fabs in Japan from its recent Elpida acquisition; in Singapore, both through its acquisition of Tech Semiconductor and through a joint venture with Intel; in Utah, thanks again to its Intel joint venture; in Taiwan, through various joint ventures and acquisitions, and in Virginia through an acquisition from Toshiba, Objective Analysis stated. Micron holds a strong position in both NAND flash and DRAM sales, and has shown itself to be quite resilient during repeated market downturns that have cut DRAM supplier ranks from 28 companies in the middle 1990s to only three today.

The market researchers noted Micron’s close relationship with Intel, with half of its Utah fab’s output sold to Intel at cost, and Intel, in return, helping design chips and processes for Micron. Less likely to be discussed is the IP aspect of the deal, which would be a solid reason for Tsinghua Unigroup to acquire Micron. “China in general is patent-poor, while Micron has been a top-ten patent publisher for a number of years.  By purchasing Micron any company would improve its negotiating stance during inescapable patent squabbles,” Objective Analysis added.

Srini Sundararajan, semiconductor analyst at W.R. Hambrecht + Co./Summit Research noted, interestingly, that while anti-trust could be an issue, he feels it would be less than imagined by Wall Street. “While there could be objections from U.S. (transfer of strategically important technology used in supercomputers) or from South Korea (due to insistence from Samsung and SK Hynix)  two things need to be pointed out.  First, the purported acquirer Tsinghua Unigroup has friendly relations (due to Intel’s 20% stake in the holding company) with Intel whose advice carries a lot of weight with the U.S. Department of Justice.  In the case of South Korea, we also think that the Fair Trade Commission is unlikely to want to incur the displeasure of Chinese authorities, especially, given that SK Hynix has already transferred top-tier DRAM technology to China in Wuxi and Samsung has transferred top-tier 3D NAND technology at its fab located at Xian.  Hence, we think that if the price is right, antitrust concerns can be dealt with successfully.”

Considering that Micron was recently trading at $35 a share and this is a temporary market cycle that the DRAM market is prone to, $21 will not be considered a fair bid over the long term, therefore, this might not even be a serious bid. Also given the recent IBM foundry sale to GlobalFoundries, it seems likely that the DoD would have some concerns about losing another trusted fab.

Micron declined to comment, stating it does not comment on rumors or speculation.

—This story will be updated as it develops. Mark LaPedus and Brian Bailey contributed to this article.