* Micron wins exclusive right with 200 bln yen offer -
* SK Hynix dropped out of bidding race on Friday
* Elpida seeking buyer after filing for bankruptcy in
By Maki Shiraki
TOKYO, May 7 Micron Technology won the
right to negotiate exclusively to buy Elpida Memory Inc after
offering more than 200 billion yen ($2.5 billion) for the failed
Japanese chipmaker, according to a source with direct knowledge
of the deal that would more than double the U.S. company's
global market share.
By acquiring Elpida, Micron would boost its market share to
25 percent, surpassing South Korea's SK Hynix and
becoming the second-biggest maker of DRAM memory chips used in
personal computers, according to U.S. technology research firm
IHS iSuppli. Samsung Electronics is the largest.
Elpida, which also makes chips used in smartphones and
tablets, has been searching for an investor to sponsor its
restructuring after filing for bankruptcy protection in February
with 448 billion yen in liabilities.
Part of the 200 billion yen would be used to repay Elpida's
debts and part of it will be invested in the chipmaker's
operations, the source said, declining to be identified because
the negotiations are confidential.
With investors concerned about how much Micron might pay,
its shares have fallen about 20 percent since late March when it
was first identified as a bidder for Elpida.
Waddell & Reed analyst Brad Warden said Micron's offer was
half a billion dollars more than he had expected but that the
potential tie-up would improve the memory industry. Waddell &
Reed owns $155 million worth of Micron's stock.
"The most important thing is, after this deal you end up
with three major players in DRAM, which makes it a more rational
market, with more rational capital decision-making and probably
more stability from a pricing standpoint," Warden said.
Micron held $2.1 billion of cash and short-term investments,
while long-term debt totalled $2.2 billion, according to the
company's earnings statement for the quarter ended March 1. It
issued an additional $870 million of convertible senior notes in
In the final round of bidding that closed last Friday,
Micron also offered to keep open Elpida's two main factories in
Japan and guarantee jobs for the company's current employees for
the time being, the source said.
Those promises helped it to outmanoeuvre SK Hynix, which
dropped out of the race last week. U.S. private
equity firm TPG Capital LP and China's Hony Capital had
placed a joint bid in the final round, the source said.
Orbis Investment Management, Micron's third largest
shareholder, said it was too early to judge a potential deal,
which could involve substantial investments by the Boise, Idaho
company to upgrade Elpida's factories in Japan.
Adam Karr, head of Orbis' U.S. research team, said Micron's
management has a track record of not overpaying for assets in
the cut-throat memory chip business.
"They have a lot of scars, and they've been through a lot in
this industry, so we'd be confident they'd handle this in a
prudent way," Karr said.
The auction was overseen by Elpida Chief Executive Yukio
Sakamoto and lawyer Nobuaki Kobayashi, the court-appointed
A Micron spokesman and the office of Elpida's trustees
declined to comment.
Shares of Micron fell 1.5 percent to $6.45 late Monday
POTENTIAL RIVAL BID
A final restructuring plan for Elpida will require the
approval of a local court and the company's creditors, not all
of them may be happy with the acquisition deal.
Last week, a group of Elpida debt holders said they may
submit a rival reorganisation plan if trustees agreed to a
low-ball bid, referring to a previous media report that put
Micron's first-round offer at 150 billion yen.
The 200 billion yen offer is better than the previously
reported price, a source close to the group of Elpida debt
holders told Reuters on Monday.
"But you cannot tell from the latest reports if what Micron
is offering is acceptable or not. The latest numbers could
seriously undervalue Elpida," the source said, declining to be
identified because he is not allowed to speak to the media.
The bondholders have told Elpida's trustees to share
information with key creditors before finalising any deal with
Micron, the source said. They also want to know how much of the
money to be injected into Elpida would be used to repay
creditors, according to the source.
Elpida previously said it may submit its restructuring plans
to a local court by Aug. 21.
A growing preference for tablets has dampened demand for
memory chips used in PCs, and growing costs to implement new
technology has added to pressure faced by dynamic random-access
memory (DRAM) makers.
If Micron buys Elpida, it may convert production lines now
making DRAM to produce more profitable chips widely used in
smartphones and tablets, many analysts believe.
Elpida's failure was the largest ever by a Japanese
manufacturer and an embarrassment for the government, which had
propped up Elpida with public funds to save what was billed as
the country's last hope for the DRAM chip market.
Elpida was formed in 1999 through a merger of the DRAM units
of Hitachi Ltd and NEC Corp under a government
initiative to promote the country's DRAM business. In 2003,
Mitsubishi Electric sold its DRAM division to Elpida.
Elpida reported losses for five straight quarters, hit by
sliding prices of DRAM chips and a strong yen.
Analysts say they are positive about the outlook for chips
used in mobile devices, which contributed 50 percent of Elpida's
revenue in the latest fiscal year to March while only accounting
for 15 percent of the memory capacity it produced.