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Chinese Private Equity Firm to Buy US Chipmaker for $23 Billion

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July 15, 2015

 

Chinese private equity firms are causing waves in the private equity industry. One of the region’s biggest firms might be bidding for the US-based Micron Technology Company, with reports suggesting the firm has offered around $23 billion for the chipmaker. But will US authorities accept the deal?

 

Reporting on the Rumours

 

The rumours broke out when the Wall Street Journal reported on insider information, citing people familiar with the matter. According to the newspaper’s sources, Tsinghua Unigroup, the state-owned private equity firm, is set to pay $21 per share for the company. This would be a 19.3% premium over the closing price of the company on Monday’s stock.

 

Furthermore, Bloomberg later reported on the rumours quoting Tsinghua Unigroup’s chairman. According to the news agency, Zhao Weiguo told them in a phone message, “We are very interested in cooperation with Micron”.

 

Spokespeople at Micron has so far denied the rumours or declined to comment on them further.

 

The Possible Deal

 

The private equity firm might well be preparing to bid for the US company. China has been looking to manufacture more semiconductors, especially in China, and the expertise of Micron could be very interesting for the firm. The government has already announced it has $161 billion earmarked for spending on the chip industry in the next five to ten years.

 

Furthermore, the past year has seen the chipmakers share price fall slightly, meaning the Chinese private equity firm could potentially capitalise on the lower share price.

 

The company remains the world’s fifth largest chipmaker in terms of revenue. Most of its production takes place in the US, but it also has large water-fabrication facilities in Asia. On top of these, it also has an assembly factory in mainland China.

 

Tsinghua Group is already a big player in the chip design industry, as it has previously acquired two of the country’s biggest mobile-chip firms, Spreadtrum Communications and RDS Microelectronics.

 

US-China Relations

 

The deal would also be historic in terms of US-China relations. The private equity firm’s takeover of Micron would be the largest such deal by a Chinese firm in the US. The current record is held by Shuanghui Internationals, which acquired Smithfield Foods in 2013 for $7.1 billion.

 

It is likely the US regulators would keep a close eye on the deal, as it relates to industries close to the country’s national defence systems. Gu Wenjun, chief analyst at iCwise consulting company, told Bloomberg, “But there is only a small possibility U.S. regulators will approve this deal because it has a very strict review over offers from foreign capital, especially China.”

 

Chinese firms haven’t shied away from big international buyouts. In 2013, the biggest Chinese foreign takeover to date was worth $15.15 billion. China’s CNOOC acquired the Canadian oil and gas company Nexen. The current deal, if to go ahead as rumoured, would top even this deal.

 

It’ll be interesting to see how the situation develops and whether US government and deal regulators get involved with the possible takeover.

 

If you are looking for more technology-related private equity deals, you should visit the DealMarket platform.

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