TOKYO (Reuters) - A group of Elpida Memory Inc ELPDF.PK bondholders will vote against Micron Technology Inc’s (MU.O) plan to acquire the bankrupt Japanese chipmaker for about $750 million, arguing that it undervalues the company’s assets, a court filing shows.
In a filing to a Tokyo district court on July 9, the bondholders said they would present an alternative proposal to counter Micron’s offer. The bondholders, which did not disclose their identities, said they were multi-billion dollar international funds investing on behalf of clients including Japanese and global pension funds.
The submission of an alternative plan, which is unusual in bankruptcy cases in Japan, would require the approval of the court before it could be put to a vote by all of Elpida’s creditors. It was not immediately clear if the group of bondholders had enough votes to scuttle the Micron deal agreed earlier this month.
The group is considering striking an alliance with other Elpida creditors, including major Japanese banks, in drawing up the plan that would involve bringing in a new sponsor to replace Micron, said a source with direct knowledge on the matter.
The counter proposal will be completed by October when a voting for the restructuring takes place, said the source, who declined to be identified because the information was confidential.
Micron agreed to acquire Elpida’s equity for 60 billion yen ($753.7 million) and pay creditors a total of 140 billion yen in annual installments until 2019. Micron will also buy a 24 percent stake in Taiwan-based Rexchip Electronics 4932.TWO from Powerchip Technology Corp 5346.TWO for $334 million.
The bondholders said the installments appeared to “be so conditional that creditors cannot be confident that they will ever be made,” according to the filing.
They also argued that Micron’s offer to pay $334 million for the 24 percent stake in Rexchip implied that Elpida’s 65 percent stake in Rexchip alone was worth 72.3 billion yen, a premium to the 60 billion yen offered for all of Elpida’s equity.
The acquisition of Elpida would push Micron into second place behind market leader Samsung Electronics (005930.KS) in the global market for DRAM computer memory chips.
The deal would also ensure the survival of some of Elpida’s operations, which had been put in jeopardy after the chipmaker filed for bankruptcy in February with 448 billion yen in debts, unable to keep pace with global competition and tumbling DRAM prices.
Micron’s acquisition of Elpida for the total sum of 200 billion yen was announced on July 2. On that day, Micron told analysts that it was purchasing Elpida at a ”deeply discounted multiple‘’ that would immediately contribute to its earnings, the group of bondholders said in the filing.
This is a “ridiculously low” acquisition multiple by any reasonable standard for mergers and acquisitions, the bondholders said.
Based on Micron’s own estimate for Elpida, the 200 billion yen represents only 2.1 times the chipmaker’s EBITDA, or earnings before interest, taxes, depreciation and amortization, a commonly used method to gauge the value of a company, the bondholders said.
The bondholders also asked the Tokyo district court to pass judgment on Yukio Sakamoto, a trustee of Elpida who served as chief executive of the company until the chipmaker filed for bankruptcy protection.
All of Elpida’s stakeholders are entitled to know exactly what happens to Sakamoto if the sale to Micron is implemented, the group said in the filing.
The bondholders, which also invest on behalf of educational and charitable organizations, said they wanted to know if Sakamoto would continue to be employed by Elpida or Micron, and if so they would like to know the position he would hold and the compensation he would be getting.
Elpida’s failure, Japan’s biggest bankruptcy ever by a manufacturer, chose Micron as its preferred investor in May.
It is rare in Japan for creditors to get involved in the restructuring of a bankrupt company.
Last year a group of foreign creditors of failed consumer lender Takefuji filed a motion seeking a better recovery rate on their debts, but it was rejected by the court.
($1 = 79.6050 Japanese yen)
Reporting by Junko Fujita; Editing by Michael Watson and Ryan Woo