NY Times: "The Challenges in a Deal for Micron"

July 16, 2015


Micron Technology would be a less than super deal for China.

Beijing sees its reliance on foreign tech as a strategic weakness, and has already struck several small deals to bolster its own semiconductor industry. Yet a reported $23 billion purchase of the American memory-chip maker would be a much tougher proposition.

[ by Robin Mak | July 14, 2015 | NY Times ]

The Wall Street Journal says that Tsinghua Unigroup, controlled by the prestigious Tsinghua University, is preparing to bid $21 a share for Micron, which makes DRAM chips for PCs, phones and servers.

In principle, that makes sense. Beijing is aiming for huge growth in semiconductors — revenue rising 20 percent a year through 2020. And Unigroup has emerged as the national champion, recently spending $2.3 billion to buy two other chip companies. Moreover, the political imperative probably means Unigroup can count on state funding for the huge sums required.

But there’s a long way to go. First, this deal sounds opportunistic. A 19 percent premium to the previous close looks cheap, especially since shares had halved this year. Slumping PC sales are a real problem. But an implied multiple of 7.8 times earnings for the year ending in August looks miserly when the industry trades on 15 times forward earnings. Shareholders, such as the hedge fund manager David Einhorn, a loud and recent convert, may hold out for more.

Second, the deal will surely attract political scrutiny — especially because China’s efforts to beef up cybersecurity laws that favor domestic tech companies are already disturbing Washington. A Committee on Foreign Investment review could be difficult. It will not be lost on United States officials that China has been pursuing deals for strategic reasons.

Third, owning Micron itself will not be straightforward. China has little experience buying and integrating foreign businesses of this size. This deal would be by some measures the largest ever Chinese takeover of a United States company. Retaining Micron staff and management, bringing manufacturing operations to the mainland, and potentially consolidating the business with Unigroup’s other investments will be no picnic.

Robyn Mak is a columnist for Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.


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