The following is an excerpt of an Objective Analysis Alert sent to our clients 7/13/15.
A July 13 Wall Street Journal article disclosed that China’s state-owned Tsinghua Unigroup has bid to buy Micron Technology for $21 a share or $23 billion, which would make this the largest-ever Chinese takeover of a U.S. company.
Objective Analysis has 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. We did not anticipate an acquisition.
Countries with heavy industry typically move into the semiconductor business during an extended upturn, and become DRAM suppliers since DRAM is an undifferentiated commodity. Commodities sell almost solely on price and success is based on little more than manufacturing strength. This is a business model that industrial economies understand.
In addition to Micron’s tangible assets, including production facilities that the company built in Idaho, Utah, and Singapore, Micron has acquired facilities in Japan, Singapore, Taiwan, and Virginia, plus there are intangibles like its strong NAND flash and DRAM sales, its close relationship with Intel, and its rich IP portfolio, which, by itself, is a very good reason for Tsinghua Unigroup to acquire the company. Micron has been on the top-ten patent list for a number of years, while most Chinese companies hold very weak patent portfolios.
The Memory Guy knows very little about the reported acquirer: Tsinghua Unigroup, but various press stories call it China’s largest government-owned chip maker, managed by China’s prestigious Tsinghua University.
Ironically, Micron’s growth has typically been achieved by acquiring DRAM production facilitiesat depressed prices from companies exiting the market when the owners feel pressured to sell. This deal would convert Micron from the acquirer to the one being acquired.
I contacted Micron who replied that the company does not comment on rumors. I would suspect that the company would find the offered price (19% above that day’s closing price) to be insufficient. Micron stock was trading in January at nearly twice that value.
If this deal really exists (and there are indications that it is no more than a rumor) there will be important government reviews that could hold it up. Should the Chinese economy collapse in the mean time this this deal may never materialize.
