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Hynix, Micron deal takes new twist

Posted: 22 Feb 2002 ?? ?Print Version ?Bookmark and Share

Keywords:hynix? micron? hynix semiconductor? micron technology? merger?

The already-complicated negotiations between Hynix Semiconductor Inc. and Micron Technology Inc., the world's third and second largest computer memory chipmakers, respectively, have taken a drastic turn as talks of Hynix's independent survival gain ground once again. This after new proposals from Micron seemed unacceptable to Hynix creditors, and market conditions are deemed to be improving.

Key proposals in question include the amount of fresh capital Hynix needs, and the assurance that Hynix's nonmemory chip businesses will remain viable after the deal. Creditors also want Micron to give full guarantee on Hynix's debt.

Points of contention

Micron has offered to buy the South Korean company's memory chip operations for a bargain $4 billion in stocks and cash, with a request for an additional $1.5 billion in fresh loans. The Micron stocks, which will serve as part of the payment for the sale, will have a set minimum value of $35 per share, and cannot be sold for one year. "Receiving the payment in stock is meaningless unless you're able to sell them when you need to," reasons a bank official as quoted by South Korean newspaper JoongAng Ilbo.

In its first draft proposal, Micron likewise did not indicate plans to purchase Hynix's nonmemory operations. As a precondition to the deal, South Korean creditors want the U.S. company to take a minority stake in the nonmemory units of Hynix to assure viability.

Furthermore, Micron, last week, threatened to pull out part of the shares to be used to buy into Hynix, if more losses or hidden liabilities are discovered after the sale. In order for it to regain the shares should such a case arise, Micron is requiring 50 percent of the shares to be deposited in an escrow account.

Should these details get ironed out, and the agreement signed and finalized, the merger would create the world's largest memory-chip maker?bumping off Samsung Electronics Co. from the top spot. But this scenario seems very unlikely at the moment, as talks tread on highly sensitive issues.

'Independent survival'

Furthermore, reports say the Hynix board is seriously considering "independent survival" as another option for the financially burdened company. This scenario is said to be favored by retail investors and Hynix employees. However, this stand-alone scenario would require the full support of the company's creditors.

Also, the improving memory chip market provides Hynix a better bargaining ground, industry observers note. Prices of memory chips have risen to the $4 level, after drastically dropping to record lows?below $1?last year, straining further the financial position of Hynix.

In an interview with JoongAng Ilbo, Shin Kook-Hwan, South Korea's commerce and industry minister, likewise expressed optimism that Hynix would be able to survive without an alliance, as long as current market conditions remain or even improve.

"The average price for the 128Mb DRAM chip has recovered. Beginning the second half of the year, demand for DRAM chips will likely increase, with the price rising further. Hynix can survive alone if the chip price stays at the current level or above," Shin explained.

From the current $4 level, Hynix and Samsung Electronics have reportedly increased their fixed dealer prices for DRAM chips by as much as 25 percent last week. Due to this, market prices of 128Mb DRAMs are said to have risen to about $4.50 to $4.75. In the Asian spot market, 128Mb DRAM prices have also reportedly gone up seven percent Monday (Feb. 18). This situation is expected to improve profitability of memory chipmakers.

Supporting efforts to remain independent, employees of Hynix are also against the deal. In a statement, the union of employees sternly questions the proposal of Micron, saying, "Is this all Hynix is worth?" They vowed to "fight for Hynix's independent survival and make whatever sacrifices necessary."

Negotiations continue

Despite all the fuss about negotiations breaking down and Hynix opting for survival without an alliance, talks are expected to go on. Hynix creditors are preparing a counterproposal to Micron's demands. Independent survival was not even discussed at the Feb. 19 board meeting.

"Negotiations have just begun; it is no time to talk about independent survival," a bank official said.

Also during the meeting, the board gave Hynix CEO Park Chong-sup full authority to sign a deal that would guarantee the viability of the remaining operations.

Formal negotiations between Hynix and Micron began in December, and were claimed to be "exploratory in nature." Park commented that "this effort represents a part of Hynix's ongoing evaluation of possible steps to maximize stakeholder value in the face of an unprecedented downturn in the semiconductor industry."

Hynix creditors came up with a $2 million bailout last year to rescue the cash-strapped chipmaker. Despite this, the South Korean company still owes its creditors $6.62 billion.

? Mark Benedict Chua

Electronic Engineering Times ? Asia

With a report from Electronic Engineering Times ? Korea

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