China Resources challenges ON Semiconductor with Fairchild bid

(Reuters) - Fairchild Semiconductor International Inc FCS.O said on Tuesday it received an acquisition proposal from an unnamed party - identified by a source as a group led by China Resources Holdings Co - that rivals a deal it made with ON Semiconductor Corp ON.O.

The new, all-cash offer of $21.70 per share values San Jose, California-based Fairchild at $2.46 billion, and tops a deal announced on Nov. 18 calling for Fairchild to be acquired by Phoenix-based ON Semiconductor for $20 per share in cash.

Hua Capital Management Co Ltd, a Chinese private equity firm that earlier this year agreed to acquire chipmaker OmniVision Technologies Inc OVTI.O for $1.9 billion, is also part of the group making the new offer for Fairchild, the source said, asking not to be identified because the source was not authorized to speak to the media.

Fairchild said its board would consider the unsolicited bid but still supported the agreement with ON Semiconductor.

The company declined to comment further, while China Resources and Hua Capital did not respond to requests for comment outside regular business hours.

Fairchild’s shares ended trading up 5.6 percent at $20.62 on Tuesday, while ON Semiconductor shares closed down 6.9 percent at $10.46.

Deals in the semiconductor sector have topped $80 billion so far this year, surpassing every full year on record, with the exception of 2000, when M&A in the sector hit $115.5 billion.

State-owned China Resources is a holding company for a group of energy, land and consumer businesses including China Resources Gas Group Ltd 1193.HK, China Resources Cement Holdings Ltd 1313.HK and China Resources Power Holdings Co Ltd 0836.HK.

China Resources participated in an auction for Fairchild ahead of the deal with ON Semiconductor. Identified by Fairchild in a regulatory filing as “Party G,” China Resources had indicated to Fairchild last month that it could offer $20.20 per share “or higher.”

However, Fairchild saw “substantially higher execution and enforcement risks” in a merger with China Resources, according to the filing. While Fairchild’s products are not used in government or defense applications, a deal with China Resources would have to be approved by the Committee on Foreign Investment in the United States.

To be sure, the committee has in the past given the green light to Chinese buyers of chipmakers. Last month, it cleared NXP Semiconductors NV's NXPI.O sale of a division to Jianguang Asset Management Co Ltd.

Fairchild could be required to pay ON Semiconductor a termination fee of $72 million if it terminates their merger agreement, according to another regulatory filing.

A chip industry pioneer, Fairchild has been struggling to boost revenue in the face of slowing demand.

Additional reporting by Alan John Koshy and Anya George Tharakan in Bengaluru; Editing by Steve Orlofsky