The board of directors at Hynix Semiconductor Inc. has rejected a US$3.1 billion acquisition bid by rival memory maker Micron Technology Inc. The announcement, reached hours before the deadline for a definitive agreement, likely brings to a close long-running negotiations to secure a tie-up or merger between Micron and Hynix, analysts said.
"We have reached the conclusion that there are too many problems with the creditors' post-merger restructuring plan for the remaining company," the Hynix board said in a statement. "The plan overestimates the value of the Micron stock to be paid for the sale of Hynix's memory business; unrealistically presumes the size and timing of contingent liabilities; and is too optimistic in its estimate of the cash flow of the remaining company."
On April 22, Hynix and Micron signed a memorandum of understanding (MOU) under which Micron planned to acquire the memory business of Hynix in exchange for about 108.6 million shares of Micron stock. The MOU followed months of negotiations, which began in late December. Based on the closing price of Micron stock Monday, the total value of the stock on offer was close to $2.9 billion. A drop in the price of Micron stock since the deal was announced has shaved $331 million off the value of the shares on offer.
In addition to the stock, Micron had offered to pay $200 million in cash for a 15 percent stake in Hynix's nonmemory operations, which include customized chip design and manufacturing.
The MOU specified Tuesday as the deadline for a definitive deal to be reached and approval from the board of directors was the final step to that. The deal would also have to had pass a shareholder vote at a later date.
The April 22 deal, which was to have made Micron the world's largest DRAM (dynamic RAM) maker, was reached by Micron in negotiations with creditors of heavily indebted Hynix. The creditors had offered to provide $1.5 billion in long-term debt financing for Micron's Korean operations once the deal went through.
"As the board of directors (at Hynix) has rejected that MOU, I think negotiations are officially closed," said S.K. Kim, a DRAM analyst at market research firm IDC, in Seoul.
Throughout the negotiations with Micron, Hynix's creditors have been calling the shots as the Seoul chip maker has teetered on the brink of bankruptcy for some time. Hynix fell deep into debt after the price of DRAM (dynamic RAM) chips, used as main memory inside personal computers, collapsed to a level where Hynix was forced to sell chips at a loss. With a rebound in chip prices during recent months, the company's debts have fallen and the company recently announced it had returned to profit.
Creditors, however, have continued to push for a sale of the company's memory operations.
The current upswing in memory prices over recent months bodes well for Hynix's chances of going it alone if the current supply surplus can be rectified, said Kim, adding that he expects memory prices to remain relatively strong over the next two to three years. Nevertheless, Kim expects the memory market to consolidate in the coming years.
"The market consolidation will continue but for the time being the bargaining power over price in negotiations has switched from buyer to seller," Kim said.
The failure to reach a solid deal is likely to have little immediate effect on DRAM prices, said Clive Ong, an analyst at memory market watcher ICIS-LOR, in Singapore.
"People are tired of waiting so the impact will not be so strong," he said of the talks between Micron and Hynix.
In recent weeks, DRAM prices have been steadily falling as distributors off-load stock during the traditionally quiet second quarter, although traders are looking to higher prices later in the year, said Ong.
"They are expecting some improvement, perhaps from the beginning of the fourth quarter, but that very much depends on the U.S. economy. So far, the demand has not been strong so the price (of a 128M-bit DRAM chip) has fallen from around $4 a month and a half ago to around $3 today," he said.