Deal Reporter
Integrated Silicon Solution Inc [NASDAQ: ISSI], the Milipitas, California-based memory chip designer may be required to sell most, if not all, of its businesses in Taiwan to clear the scrutiny from the country's Investment Commission (IC), according to two sources familiar with the regulator.
Shareholders approved on 29 June a sale of the company to China’s Uphill Investment – led by Summitview Capital, eTown MemTek Ltd., Hua Capital and Huaqing Jiye – for USD 23 per share in cash. The transaction is subject to clearance by the Taiwan IC and several additional regulators including the Committee of Foreign Investment of the United States (CFIUS).
Under the ISSI merger agreement, the company and buyer have agreed to formulate a "Taiwan plan" to restructure ISSI and its subsidiaries to allow the transaction to be consummated under Taiwan law. If they are unable to draft a viable restructuring plan, they have agreed to divest the subsidiaries incorporated in Taiwan.
ISSI's legal representatives in Taiwan are said to have prepared different divestment packages to the IC in past few months. The packages ranged from fully divesting the Taiwan assets to non-Chinese third parties, restructuring part of the assets alongside selling some of them, and restructuring most of the assets while keeping them under ISSI's control, the sources said.
Although no final restructuring or divestment packages have reached the IC as of early July, the IC prefers the most conservative divestment package – in which most or all entities are divested – given the nature of the Taiwanese subsidiaries, according to the sources.
Under Taiwan law, entities controlled by Chinese companies or funds are not allowed to own any interests, no matter directly nor indirectly, in Taiwanese semiconductor chip designers, the source explained. As a result, ISSI's chip designing businesses in Taiwan are expected to be divested before the transaction is closed.
ISSI has four companies in Taiwan, three of which it acquired in 2005, 2009, and 2012 respectively. The Taiwan subsidiaries – most of them are operating in memory chip designing sector – includes Integrated Circuit Solution (ICSI), Enable Semiconductors, Chingis Technology Corporation, and an entity set up by ISSI.
This news service reported in April that ISSI has identified “at least four or five options” regarding the possible divestiture of one or more of its businesses in Taiwan as part of its deal to sell to a Chinese consortium.
No matter which option ISSI and its buyer pursue, Taiwan's IC will look to see that the controlling interests are not owned by Chinese entities, as well as that the core technology/patent pool of ICSI and Chingis will not be shared with the Chinese entities post acquisition, as earlier reported.
Typically, an IC review takes up to 60 calendar days, but so far the IC has not yet started to look at the final version of ISSI's restructuring/divestment plan.
ISSI said on 26 June that it expects the acquisition to close in the third calendar quarter of 2015.
ISSI's stock traded at USD 21.85 apiece, or 5% lower than the offer price, on Tuesday.