April 4, 2011 / 6:03 AM / 7 years ago

TowerJazz plans to buy Micron chip plant in Japan

* Price includes $40 mln cash, 20 mln new TowerJazz shares

* Micron to hold 6 percent stake in Tower Jazz

* TowerJazz to target Japanese camera companies

By Tova Cohen

TEL AVIV, April 4 (Reuters) - Israeli chipmaker TowerJazz (TSEM.TA) signed a non-binding agreement to buy Micron Technology’s (MU.O) plant in Nishiwaki City, Japan for $140 million in a deal that would nearly double production capacity.

The proposed purchase of the plant, located 600 km south of Tokyo, would increase production by 80 percent, or 60,000 wafers per month, TowerJazz said on Monday. It would also strengthen the company’s presence in the Asia-Pacific region.

The additional capacity combined with the business potential in Japan will help position TowerJazz to achieve its target of a $1 billion annual revenue run-rate by 2014. It had revenue of $509 million in 2010.

As part of the deal, the companies expect to sign a supply agreement for TowerJazz to manufacture DRAM memory devices for Micron in the Japan facility for the next three years.

The facility, which was not affected by the earthquake and tsunami in Japan last month, can also make other products using TowerJazz technologies.

TowerJazz (TSEM.O), a small player in a $20-billion-a-year chip industry, has carved out a niche as a specialty maker of image sensors used in medical and dental x-rays, mobile phone cameras and digital cameras as well as radio-frequency chips and embedded memory chips.

TowerJazz said Japan only accounts for half a percent of the company’s output. The Micron facility will help TowerJazz target Japanese camera companies.

“We will be able to acquire some very good camera companies as end users,” Russell Ellwanger, TowerJazz chief executive, told Reuters. “We haven’t been able to make progress with high-end camera users and having a presence in Japan opens up that opportunity for us.”

TowerJazz also plans to use the plant to serve the substantial growth demand from South Korean customers, Ellwanger said, noting the flight from Osaka to Seoul is only 90 minutes.

The company has not yet determined what would be the deal’s impact on earnings though it will create cash in 2011.

    “In 2013, as we build up our customer base, it will become a very big cash producer and contribute strongly to profit,” Ellwanger said.

    The value of the deal includes assumed pension liabilities of $70 million. Tower would also pay $40 million in cash and issue to Micron 20 million new ordinary shares, or about a 6 percent stake.

    This would equal the stake owned by holding company Israel Corp (ILCO.TA), TowerJazz’s largest shareholder.

    Tower’s shares closed at $1.35 on Nasdaq on Friday.

    The parties are negotiating definitive agreements.

    “We have a target that the keys will be handed over at the beginning of June,” Ellwanger said.

    He said the factory will be cash positive just from its supply agreement with Micron, giving TowerJazz time to build up its own customer base. He did not disclose what portion of production Micron would take but said it would be high.

    Ellwanger said he sees the multi-year supply agreement with Micron as the first step in a long-term partnership.

    Editing by Erica Billingham

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