TELECOMS: Globalizing Unigroup Buys Talent, US Hard Drive Stake

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Bottom line: The latest global acquisitions by Tsinghua Unigroup and Unisplendour show the company still aims to build a global IT services and hardware giant, which could culminate with a new bid for Micron in 2017.

Unigroup makes major boardroom acquisition

The ambitious Tsinghua Unigroup may have abandoned its controversial bid for leading US memory chip maker Micron (Nasdaq: MU) for now, but the Chinese high-tech wannabe certainly isn’t giving up on its global aspirations. That’s my interpretation of the company’s latest moves, which include its hiring of a Taiwanese executive with ties to Micron, as well as the recent purchase of a major stake in leading US hard drive giant Western Digital (Nasdaq: WDC) by a sister company.

Unigroup and sister company Unisplendour‘s names have appeared all over the map this past year, as they form a steady string of major equity tie-ups with the likes of leading global chip maker Intel (Nasdaq: INTC) and IT services and hardware giant Hewlett-Packard (NYSE: HPQ). But the companies’ ambitious plans to create an IT services and hardware megaplex similar to IBM’s (NYSE: IBM) hit a major roadblock over the summer, when Unigroup had to scrap its plans to buy Micron due to potential political opposition in Washington. (previous post)

But instead of being dissuaded by that setback, Unigroup now appears to be setting its sights on other global targets with a possible eye to making a new play for Micron later on. Its latest acquisition comes on the talent front, with word the company has hired Taiwanese chip veteran Charles Kau to be one of its 3 global executive vice presidents. (English article)

According to the reports, Kau last week quit his position as president of Nanya Technology, one of Taiwan’s leading memory chip makers. Kau was also chairman of Inotera, a chip-making joint venture between Nanya and Micron. The reports say Kau will remain in his position on Nanya’s board. But more significantly, he will also keep his position as Inotera’s chairman, the reports say.

That Inotera position, and its ties to Micron, could help Unigroup if it wants to make another bid for the US chip giant later. I previously said that a major killer of the earlier Unigroup-Micron talks was politics, since such deals become extra sensitive during election cycles like the one happening now in the US.

But once the election is in the past, Unigroup could try to make a lower profile bid for Micron once more in 2017. That would leave a couple of years for Kau and Unigroup Chairman Zhao Weiguo a couple of years to become familiar with each other and build the trust and communications that a successful bid for Micron would require.

Buying Into Hard Drives

Meantime, I also wanted to go on the record with a deal that I missed late last month, which saw Unigroup-affiliated Unisplendour pay $3.8 billion for 15 percent of Western Digital. (company announcement; English article) Unisplendor acquired the stake by buying newly issued shares of Western Digital for $92.50 each, representing a hefty 35 percent premium to the stock price at the time.

Western Digital’s stock has risen sharply since then, though it still currently trades about 8 percent below what Unisplendour paid. The big premium probably surprised many, since Western Digital operates in a highly competitive space in the market for memory products and devices. The company reported its revenue fell by 13 percent in its latest quarter and profit fell 31 percent, showing just how cut-throat things are.

At the end of the day, Unisplendour probably overpaid for Western Digital, and now Unigroup is probably paying a hefty premium to lure Charles Kau into its ranks. But the company, which is controlled by leading Chinese sciences university Tsinghua, doesn’t seem too worried about things like prices at the moment and is more interested in building up its hardware business. Accordingly, we can expect to see more major global purchases going forward, possibly culminating to a new bid for Micron in 2017.

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