Micron Has Better Options Than a Cheap Bid From China: Real M&A
2015-07-14 18:25:29.570 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Brooke Sutherland
(Bloomberg) -- Turning down a $23 billion takeover offer
would be a good move for Micron Technology Inc.
That’s how much Tsinghua Unigroup Ltd., the state-owned
investment arm of one of China’s top universities, is planning
to offer for the U.S. chipmaker, according to a person familiar
with the matter.
At $21 a share, Tsinghua would be paying just 4 times
Micron’s earnings before interest, taxes, depreciation and
amortization in the last 12 months. Only one company has done a
big semiconductor deal for cheaper, and it was Micron -- in the
company’s 2013 takeover of Elpida Memory Inc. out of bankruptcy.
“It’s an extremely low-ball bid,” Srini Sundararajan, an
analyst at Summit Research Partners, said in a phone interview.
“I think they’re using this as a trial balloon to see how
everybody reacts.”
Not only is the proposal almost 75 percent lower than where
the stock was trading in December, it’s also 40 percent below
where analysts had seen the stock going on its own in the next
year. On Tuesday, the stock traded in New York at $19.65 as of
2:24 p.m.
That’s not to say Micron should command the top valuation.
It’s had its share of issues: The market for personal computers,
the biggest use of its memory, is shrinking. That’s caused
prices to fall and crimped profit: Micron has lost money in four
of the last eight years.
But recently, some -- including shareholder David Einhorn
of Greenlight Capital Inc. -- see potential for a turnaround as
consolidation helps stabilize prices.
Better Prospects
Micron should be valued at about $33.75 a share based on
the valuations of peers and analysts’ forecasts for better
results, said Sachin Shah, a special situations and merger
arbitrage strategist at Albert Fried & Co.
Any buyer would then probably have to pay a premium on top
of that, in part to compensate for tax benefits that Micron
acquired through the Elpida takeover, he said.
“My point is, potentially $21 doesn’t even compensate for
what it should be worth on a stand-alone basis, let alone on a
takeover basis,” Shah said.
In a letter to investors released Monday, Einhorn said that
Micron will be worth more than Netflix Inc. at some point over
the next few years. The streaming service has a market value of
$43 billion. Applied to Micron, that would translate into a
stock price of about $40, according to data compiled by
Bloomberg.
Chinese Hurdles
There are other reasons to say no to Tsinghua. The Chinese
buyer will face steep antitrust scrutiny over a takeover of
Micron, particularly from U.S. regulators concerned about the
loss of technology to foreigners. Micron is America’s only big
manufacturer of dynamic random access memory, or DRAM, chips,
according to Morgan Stanley.
Micron will have to tread carefully in negotiations.
Tsinghua is state-backed and China is the world’s largest market
for semiconductors. Micron got 41 percent of its revenue last
year from the country.
Other buyers could give Micron more options. Toshiba Corp.
or SanDisk Corp. may step forward as suitors, though SanDisk
would need to take on a substantial amount of debt to pull a
deal off, said Sundararajan of Summit Research.
Intel Corp., which owns a 20 percent stake in Tsinghua and
gets a big chunk of its revenue from China, could be inclined to
give its blessing to the Micron takeover. Then again, Intel also
has had a relationship with Micron and may find greater value in
acquiring the company outright, Timothy Arcuri, an analyst at
Cowen Group Inc., wrote in a report on Tuesday.
“It is in play,” Sundararajan said. “Whoever has the
money will make a bid.”
For Related News and Information:
Big Tech Deals Are Coming as Avago Makes First Move: Real M&A
Broadcom Is One Pricey Chip Target as Avago Seals Deal: Real M&A
Micron Beating Netflix to Tesla as Einhorn Buys: Riskless Return
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Ian King in San Francisco.
To contact the reporter on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-07-14 18:25:29.570 GMT
(For a Real M&A column news alert: {SALT REALMNA <GO>}.)
By Brooke Sutherland
(Bloomberg) -- Turning down a $23 billion takeover offer
would be a good move for Micron Technology Inc.
That’s how much Tsinghua Unigroup Ltd., the state-owned
investment arm of one of China’s top universities, is planning
to offer for the U.S. chipmaker, according to a person familiar
with the matter.
At $21 a share, Tsinghua would be paying just 4 times
Micron’s earnings before interest, taxes, depreciation and
amortization in the last 12 months. Only one company has done a
big semiconductor deal for cheaper, and it was Micron -- in the
company’s 2013 takeover of Elpida Memory Inc. out of bankruptcy.
“It’s an extremely low-ball bid,” Srini Sundararajan, an
analyst at Summit Research Partners, said in a phone interview.
“I think they’re using this as a trial balloon to see how
everybody reacts.”
Not only is the proposal almost 75 percent lower than where
the stock was trading in December, it’s also 40 percent below
where analysts had seen the stock going on its own in the next
year. On Tuesday, the stock traded in New York at $19.65 as of
2:24 p.m.
That’s not to say Micron should command the top valuation.
It’s had its share of issues: The market for personal computers,
the biggest use of its memory, is shrinking. That’s caused
prices to fall and crimped profit: Micron has lost money in four
of the last eight years.
But recently, some -- including shareholder David Einhorn
of Greenlight Capital Inc. -- see potential for a turnaround as
consolidation helps stabilize prices.
Better Prospects
Micron should be valued at about $33.75 a share based on
the valuations of peers and analysts’ forecasts for better
results, said Sachin Shah, a special situations and merger
arbitrage strategist at Albert Fried & Co.
Any buyer would then probably have to pay a premium on top
of that, in part to compensate for tax benefits that Micron
acquired through the Elpida takeover, he said.
“My point is, potentially $21 doesn’t even compensate for
what it should be worth on a stand-alone basis, let alone on a
takeover basis,” Shah said.
In a letter to investors released Monday, Einhorn said that
Micron will be worth more than Netflix Inc. at some point over
the next few years. The streaming service has a market value of
$43 billion. Applied to Micron, that would translate into a
stock price of about $40, according to data compiled by
Bloomberg.
Chinese Hurdles
There are other reasons to say no to Tsinghua. The Chinese
buyer will face steep antitrust scrutiny over a takeover of
Micron, particularly from U.S. regulators concerned about the
loss of technology to foreigners. Micron is America’s only big
manufacturer of dynamic random access memory, or DRAM, chips,
according to Morgan Stanley.
Micron will have to tread carefully in negotiations.
Tsinghua is state-backed and China is the world’s largest market
for semiconductors. Micron got 41 percent of its revenue last
year from the country.
Other buyers could give Micron more options. Toshiba Corp.
or SanDisk Corp. may step forward as suitors, though SanDisk
would need to take on a substantial amount of debt to pull a
deal off, said Sundararajan of Summit Research.
Intel Corp., which owns a 20 percent stake in Tsinghua and
gets a big chunk of its revenue from China, could be inclined to
give its blessing to the Micron takeover. Then again, Intel also
has had a relationship with Micron and may find greater value in
acquiring the company outright, Timothy Arcuri, an analyst at
Cowen Group Inc., wrote in a report on Tuesday.
“It is in play,” Sundararajan said. “Whoever has the
money will make a bid.”
For Related News and Information:
Big Tech Deals Are Coming as Avago Makes First Move: Real M&A
Broadcom Is One Pricey Chip Target as Avago Seals Deal: Real M&A
Micron Beating Netflix to Tesla as Einhorn Buys: Riskless Return
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>
--With assistance from Ian King in San Francisco.
To contact the reporter on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman