CHIPS: China Chip Buyers Meet Resistance in US, Taiwan

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Bottom line: Setbacks in 2 major global chip acquisitions by Chinese buyers show the Chinese are likely to be seen as foreigners by western manufacturers who would prefer to be bought by more familiar hometown rivals.

China chip buyers hit resistance in US, Taiwan

Two new developments in China’s global chip-buying spree are showing that political opposition isn’t the only obstacle Chinese buyers will encounter in their quest to acquire foreign technology. The Chinese could also face competition from rival suitors, with word that recent bids by the fast-growing Tsinghua Unigroup and newcomer China Resources have both hit such resistance.

In the first case, Unigroup’s recently announced plan to buy 25 percent of Taiwanese chip tester Siliconware Precision Industries (Taipei: 2325) has been followed by a new counter bid from Taiwan’s own Advanced Semiconductor Engineering (Taipei: 2311). The second case has US-based Fairchild Semiconductor (Nasdaq: FCS), which is in the process of merging with ON Semiconductor (Nasdaq: ON), rebuffing a higher rival bid from China Resources.  

It’s somewhat coincidental that both of these setbacks are coming on the same day, as they represent the first 2 major cases of commercial forces conspiring to derail China’s recent global chip-buying binge. Up until now, political forces have been the biggest spoiler in the buying spree. Such opposition derailed Unigroup’s previous bid to buy leading US memory chip maker Micron (Nasdaq: MU) for $23 billion earlier this year.

Let’s begin with the latest Unigroup deal, which saw the aggressive company backed by China’s prestigious Tsinghua University announce last week it had agreed to buy a quarter of Siliconware for T$56.8 billion ($1.7 billion). (Chinese article) Now it seems that Advanced Semiconductor, which already owns a major stake in Siliconware, has offered to pay a similar amount per share to buy out the rest of the company in a deal valued at $3.9 billion. (English article)

I’m not very familiar with these companies, but the nature of the reports appears to show that Advanced Semiconductor and Siliconware are direct rivals, and that the latter would prefer to remain independent rather than purchased by its larger competitor. That would make Advanced Semiconductor’s bid a hostile one, and indicates Siliconware would rather have Unigroup join Advanced Semiconductor as a new major but non-controlling shareholder.

Some company politics are clearly involved here, which makes it difficult to predict what will happen next for an outsider like myself. But it does appear that a bidding war could ultimately erupt for Siliconware, and Unigroup could be at a disadvantage due to its outsider status. Accordingly, it may be forced to raise or even abandon its bid.

Fairchild Sticks with ON

Next there’s China Resources, which surprised industry watchers last week when media reported it was making an unsolicited bid for Fairchild, a mid-sized US chip company. (previous post) The bid was unexpected because Fairchild had previously agreed to be acquired by US suitor ON Semiconductor, and also because China Resources is better known as a consumer products company with little or no experience in the chip space.

I previously said the China Resources bid looked clumsy and was likely to fail, and now media are reporting that Fairchild has indicated it’s not interested in the offer, which was higher than the original one from ON Semiconductor. (English article) Fairchild has said it is committed to the deal it has already signed with ON, and has no plans to break that agreement to consider China Resources’ unsolicited bid.

The fact of the matter is that Fairchild probably feels far more comfortable merging with ON, a company that is both from the same country and the same sector, versus an uncertain future it would face with the very foreign China Resources. Some might say the other deal looks similar, since both Siliconware and Advanced Semiconductor  are both from Taiwan and engaged in chip testing and assembly.

At the end of the day, both cases do illustrate that Chinese buyers are likely to be seen as foreigners in most of the deals they pursue in the rapidly consolidating global chip sector. That means they could easily get trumped in many of those deals if their acquisition targets feel more comfortable being purchased by more familiar hometown rivals.

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