Temasek agrees to sell its stake as ATIC looks at entity to challenge Taiwan giants
By JAMIE LEE
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(SINGAPORE) The widely anticipated sale of Chartered Semiconductor Manufacturing is on the point of being realised as Abu Dhabi's Advanced Technology Investment Corporation (ATIC) put a S$2.5 billion privatisation offer on the table.
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| BT scoop: The Abu Dhabi firm's bid for Chartered was first reported by The Business Times on May 29 this year |
The offer excludes about S$3.1 billion in Chartered's debt and convertible redeemable preference shares that ATIC will have to take on, bringing the total bid value to S$5.6 billion.
ATIC's move for Chartered comes after it set up Globalfoundries - a joint venture with Advanced Micro Devices Inc - in March this year, signalling the state-owned company's ambition to muscle into the semiconductor space.
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While some analysts wonder if Chartered could receive more attractive bids from competing suitors, others have rejected the idea as the company's large debt is likely to deter such bidding.
Shares of Chartered opened 2.3 per cent lower in the afternoon after the ATIC bid was announced. The stock ended at S$2.59 yesterday, down 2.63 per cent or seven cents.
ATIC has offered to buy each Chartered share at S$2.68 apiece - which represents a small premium to Chartered's closing price of S$2.66 on Friday - and about US$18.64 for each of its American Depository Shares. This translates to about one time of its price-to-book ratio.
'Our view at ATIC is to be a long-term investor,' ATIC chairman Waleed Al Mokarrab told a media conference yesterday, adding that the company looks to provide 'substantial and patient capital'.
'We have put a compelling offer on the table and we believe that others would be hard-pressed to make as compelling an offer as we have.'
Temasek Holdings has also signed an 'irrevocable undertaking' to sell its 62.3 per cent stake that is valued at about S$1.5 billion, which 'represents a relatively large barrier' for other bidders, said Mr Mokarrab.
ATIC will not rule out merging Chartered and Globalfoundries later, said ATIC chief executive Ibrahim Ajami, adding that the aim is to push Chartered a notch up to become the world's second-largest foundry after Taiwan Semiconductor Manufacturing Company (TSMC).
TSMC and another Taiwanese foundry United Microelectronics Corp have had an edge over Chartered up to now, given their bigger scale and capacity.
When the acquisition goes through as early as the end of the year, Chartered will still remain a separate entity but it will be run by Globalfoundries' chief executive Doug Grose. Meanwhile, Chartered's current chief executive Chia Song Hwee will become chief operating officer of the combined operations. Mr Chia said that any job redundancies from the sale will be minimal.
Chartered chairman Jim Norling said that the board had considered a variety of options and saw ATIC's bid as the best strategic choice. Under the scheme of arrangement with ATIC, the board has agreed to not solicit other bids. The company will also need to maintain a stipulated cash balance as part of the deal.
Macquarie analyst Patrick Yau said in a report that the deal will significantly reduce Globalfoundries' customer acquisition costs.
'Chartered over the years has been successful in adding key names such as Qualcomm, Texas Instruments, Broadcom and Microsoft to its customer base but just did not have enough financial and manufacturing leverage to meaningfully extract economic profit from these relationships,' he wrote.
DMG & Partners Securities analyst James Lim urged Chartered shareholders to reject the offer, noting that the shares could appreciate above the offer price and competing offers may come along, especially after Chartered lowered its net loss estimates.
In a separate announcement yesterday, loss-making Chartered lifted revenue estimates for its third quarter by 5.7 per cent to US$410 million. Net loss is expected to narrow to US$4 million against the earlier projection of as much as US$22 million.
CEO Mr Chia said yesterday that recent demand has been 'pretty healthy' as a mix of end customer demand and re-stocking activities have returned.
But DBS Vickers Securities analyst Tan Ai Teng said in a note that the chance of another offer was low. 'At this juncture, we have yet to identify a better fit for Chartered and so believe the chance is low for a counter offer by third party, especially given such a sizeable portion of debt.'
The news follows an earlier denial from Chartered that it had received 'such a bid' from ATIC after a BT report in May that ATIC made a S$2.45 billion bid.
Mr Chia declined to say when negotiations between Chartered and ATIC began.
Credit Suisse (Singapore) is the financial adviser to ATIC while Morgan Stanley Asia (Singapore) and Citigroup Global Markets Singapore are the joint financial advisers to Chartered. The deal is subjected to shareholders' approval.
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