Lack of transparency may risk sale to Micron, U.S. judge warns Elpida

Wed Oct 24, 2012 2:41pm EDT

* "I don't have a problem tanking a case," judge warns

* Declines bondholder request for court representative

By Tom Hals

WILMINGTON, Del, Oct 24 (Reuters) - A U.S. judge told Japanese chipmaker Elpida Memory Inc he was "troubled" by the firm's inadequate efforts to keep creditors informed about its bankruptcy process, and warned he may upend its proposed sale to U.S. rival Micron Technology Inc.

Elpida's main bankruptcy proceeding is being handled by a district court in Tokyo, but Christopher Sontchi, the Delaware Bankruptcy Court judge overseeing Elpida's parallel U.S. case, said the company was taking a risk by not keeping creditors better informed.

"I don't have a problem tanking a case," judge Sontchi said at a court hearing in Wilmington on Wednesday. Sontchi will eventually have to approve the transfer of U.S. assets after a sale is cleared by the Japanese court.

Elpida, the last of Japan's dynamic random access memory (DRAM) chipmakers, was driven into bankruptcy by falling chip sales and foreign competition. The company proposed a $2.5-billion sale to Micron, based in Boise, Idaho, as a way to repay creditors.

That deal would catapult Micron into the No. 2 spot in the global market for DRAM chips, behind Samsung Electronics .

Bondholders, led by hedge funds Linden Advisors, Owl Creek Asset Management and Taconic Capital Advisors, have said the $2.5-billion price tag grossly valuation undervalues the firm, arguing that Elpida is worth 300 billion yen ($3.78 billion).

Saying the planned sale to Micron has lacked transparency, failed to involve creditors and not gone through meaningful competitive bidding, the bondholders have proposed their own restructuring plan to the Tokyo court.

The Tokyo court has appointed a neutral examiner to review the two bankruptcy plans and to make a recommendation.

On Wednesday, Sontchi rejected a request by the bondholders to appoint a court representative who could interact with the Japanese court and demand information from the company.

Elpida filed for court protection of its U.S. assets under Chapter 15 of the U.S. bankruptcy code. The company has argued that the law requires a U.S. judge to give deference and assistance to the main foreign proceeding.

Sontchi, however, noted exceptions.

"This court cannot and will not give deference if there is a manifest problem with due process," he said.

Sontchi said he was troubled that Elpida never notified him or U.S. creditors that the company struck a supply agreement with Apple Inc, one of its top customers for DRAM chips. In the agreement, Elpida pledged 523 patents to the iPhone maker, half of which are registered in the United States.

The deal only came to light after Sontchi ordered Elpida to open its records to U.S. bondholders.

Elpida and the bondholders will return to court Nov. 8 to decide how Sontchi should review certain rulings by the Tokyo court, a decision that could impact the sale to Micron.

Elpida argues that Sontchi must approve orders by the Tokyo court unless the orders are manifestly contrary to U.S. law.

The bondholders disagree and want Elpida to be forced to prove its decisions were made in good faith and in the best interests of creditors. Such a finding will likely require broad disclosures about the sale process and a trial-like hearing with witnesses.

The case is Elpida Memory Inc, Delaware Bankruptcy Court, No. 12-10947.

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