Chip deal price bump shifts spotlight to Berlin

4 minute read

A worker checks a wafer chip in the clean room at the UTAC plant in Singapore February 8, 2018.

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LONDON, Jan 25 (Reuters Breakingviews) - GlobalWafers (6488.TWO) Chairman and Chief Executive Doris Hsu has cleared one of two remaining hurdles in her pursuit of German rival Siltronic (WAFGn.DE). Improving her cash bid to almost 4.4 billion euros should enable the Taiwanese company to take control. Persuading the German government to approve the deal may be harder.

Since Friday Hsu has raised her offer twice and made important tweaks to the deal’s terms. GlobalWafers will now pay 145 euros per share in cash, up from 125 euros in December. The new price is about 30% above Siltronic’s undisturbed share price, and roughly 29 times the earnings analysts reckon it generated in 2020. Its three main rivals trade on an average multiple of 26 times.

Crucially, the $11 billion GlobalWafers also lowered the proportion of Siltronic shares it needs to complete the deal to 50%, from 65%. The German company's largest investor Wacker Chemie (WCHG.DE), which owns roughly 31%, has committed to sell. Hsu has also been buying in the market. As of Monday morning, she needed just 13.05% of Siltronic’s shares to get over the line.

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GlobalWafers is not seeking a so-called domination agreement - a quirk of German takeover law which enables a buyer to take full control of its target but lets minority shareholders hold out for a higher price. Any hedge funds which piled into Siltronic in the hope of squeezing the buyer are therefore likely to sell. After a 3% drop on Monday morning the German company's shares were changing hands at a 3% discount to GlobalWafers' offer.

Now the spotlight turns to Berlin. German Economy Minister Peter Altmaier has made it clear that he’ll use the state’s muscle to protect jobs and sensitive technologies. Hsu can argue that Taiwan is no adversary, and that there’s nothing politically sensitive about the humdrum business of selling wafer material to chipmakers. Besides, Siltronic may be better off with GlobalWafers’ backing than as a subscale standalone group.

Yet Altmaier might think about the longer-term risks of concentrating global semiconductor production even more acutely in Asia. The German car industry is currently smarting from a shortage of automotive chips. Ceding yet more influence over the sector seems like an odd choice. It’s a possibility Siltronic shareholders are not currently discounting.

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- GlobalWafers on Jan. 25 reduced the acceptance threshold for its offer for Germany’s Siltronic to 50% from 65%. The Taiwanese group also said it would not seek a domination and profit transfer agreement with Siltronic in the next three years.

- GlobalWafers on Jan. 23 raised its cash offer to 145 euros per share, compared with an original bid of 125 euros launched in December.

- Shares in Siltronic were trading at 141.3 euros at 0929 GMT on Jan. 25.

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Editing by Peter Thal Larsen and Karen Kwok

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