CHIPS: Amid Broad Chip Deal Resistance, Okmetic Sale Advances

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Bottom line: Okmetic’s sale to a Chinese buyer was uncontested because of the company’s small size and youth, but the case could be closely watched to see how China might handle future takeovers of larger western chip makers.

Okmetic shareholders approve China takeover

China’s sudden appetite for overseas high-tech chip makers is attracting growing resistance from wary western governments, but one deal that seems to be avoiding such tensions is the purchase of Finnish company Okmetic (Helsinki: OKM1V). Just 2 months after announcing its plans to be acquired by China’s National Silicon Industry Group (NSIG), Okmetic has moved steadily forward with the plan and has just announced that holders of an overwhelming 93 percent of its shares have agreed to accept the offer. (company announcement)

The apparent lack of resistance to this particular deal is probably in large part due to its size. Okmetic has a very modest market value of about 150 million euros ($165 million), following NSIG’s April offer to buy the company for 9.20 euros and a dividend of 0.65 euros for each company share. (previous post). What’s more, the company itself is also very young, founded just last year.

All that said, it’s not too surprising that such a large number of shareholders accepted the offer, which represented a rich premium of 23 percent to Okmetic’s share price before the deal was announced. The tender offer has a deadline of June 14, which happens to be today, and Okmetic has scheduled a July 7 shareholder meeting related to the sale. Presumably NSIG representatives will be the main attendees at that meeting, and I would expect we’ll see the new Chinese owner choose all of Okmetic’s new board members at an election set for that day.

I’m not that familiar with NSIG, but it appears to be a government-linked organization set up to help China build up its semiconductor chip industry. Despite being the world’s largest consumer of microchips that power everything from smartphones to TVs and cars, very little production of actual chips takes place in China. Instead, most of that high-margin business occurs in places like South Korea, Japan, Taiwan and the US, in an industry dominated by names like Qualcomm (Nasdaq: QCOM), Samsung (Seoul: 005930) and TSMC (Taipei: 2330).

Little Government Scrutiny

What’s most interesting about this Okmetic deal is the complete lack of government scrutiny it seems to have drawn, at least based on the absence of media reports. That contrasts sharply with another major deal now in the headlines, which would see Chinese appliance giant Midea (Shenzhen: 000333) buy 30 percent of German industrial robotics firm Kuka (Frankfurt: KU2) for more than $1 billion. Both German and EU officials have spoken out against the deal, saying they would prefer to see the stake purchased by a European company. (previous post)

Resistance has been similarly strong to Chinese purchases of chip companies in the US and nearby Taiwan. Such resistance killed previous discussions for Chinese buyers to purchase leading US memory chip maker Micron (Nasdaq: MU) and a major stake in hard disk drive maker Western Digital (Nasdaq: WDC). In Taiwan, new President Tsai Ing-wen has also expressed big reservations about a Chinese buyer’s plans to purchase big stakes in 3 major microchip makers.

But many of those deals were valued in the billions of dollars or in the hundreds of millions at the very least. What’s more, all involved companies with far longer histories, and were top-tier players in the Micron and Western Digital cases. Such is hardly the case for a company like Okmetic.

All of that brings us back to the Okmetic story, and what it might say about China’s strategy for assembling one or more global chip giants. I expect we’ll probably see more of these smaller, lower-profile purchases by Chinese buyers going forward, and perhaps the Chinese will try and show their motivations are commercial and not political, as some westerners suspect. Accordingly, perhaps some western politicians and industry executives may quietly attend Okmetic’s first shareholder meeting under Chinese control on July 7 to see what NSIG will do, including its selection of board members.

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