Taiwan chip takeover tests German tech defences

SumCo

30/11/2020 10:59

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Pete Sweeney
    HONG KONG, Nov 30 (Reuters Breakingviews) - Taiwan’s play
for Germany’s only major silicon wafer manufacturer will test
Berlin’s technology defences. Taipei-listed GlobalWafers
 6488.TWO  wants to buy Munich-based Siltronic  WAFGn.DE  for
3.8 billion euros in a transaction that will create the world’s
second-largest manufacturer of semiconductor slices. The deal
will help consolidate an oversupplied and heavily cyclical
industry, while shoring up the German group. But it ultimately
runs counter to Berlin’s drive to keep research and
manufacturing at home. 
    GlobalWafers is expected to bid 125 euros per share, a
premium of 11% to the German company’s closing price last
Friday, and around 20 times expected earnings for this year.
That’s roughly on par with other listed peers. The offer is
well-timed as the global economy begins to look forward to
pandemic vaccines. That will revive demand and help run down the
excess inventories built up in 2020. GlobalWafers will gain
access to Siltronic’s more sophisticated designs while the
German group will be able to sell its products to a broader
customer base. Most importantly Siltronic will become part of
a $13 billion competitor commanding nearly a third of the world
wafer market. Shares in both companies rose by around 10% on the
news. 
    The combination should deliver some operational
efficiencies. GlobalWafers will have to squeeze about 40 million
euros per year in savings out of Siltronics to justify the
takeover premium, according to Breakingviews calculations. It
won’t be able to do it by slashing jobs or moving production to
cheaper locations, though: GlobalWafers has promised not to
touch Siltronic’s headcount in Germany until 2024. 
    Yet it’s not clear reassurances over jobs will be sufficient
to overcome German government concerns about surrendering
control of technology. Economy Minister Peter Altmaier has
promised to protect domestic technology from opportunistic
overseas buyers. Though those protections were designed to ward
off unwanted Chinese bidders, a Siltronic takeover would leave
the largest chip material makers dominated by Asian companies:
Sumco  3436.T  and Shin-Etsu Chemical  4063.T  of Japan, South
Korea’s SK Siltron, and Taiwan’s GlobalWafers. The question is
whether consolidation that should help strengthen the overall
industry can overcome Germany’s tech defences. 
    On Twitter https://twitter.com/petesweeneypro 
    
    CONTEXT NEWS
    - German chipmaker Siltronic said on Nov. 29 that Taiwan's
GlobalWafers is interested in acquiring it for 3.8 billion
euros.
    - Siltronic said it expects GlobalWafers to bid 125 euros
per share. That represents an 11% premium over the last closing
price and the highest level the stock has seen since 2018. A
formal announcement is expected in the second week of December.
    - Siltronic shares were trading at 124 euros, up 8.9%, by
1030 GMT on Nov. 30. GlobalWafers shares were up 10% in Taipei.
    - Nomura is advising GlobalWafers while Siltronic is advised
by Credit Suisse, Reuters reported citing persons familiar with
the matter.     
    -  For previous columns by the author, Reuters customers can
click on  SWEENEY/ 
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German chipmaker Siltronic in advanced takeover talks with
GlobalWafers     urn:newsml:reuters.com:*:nL1N2IG09F
BREAKINGVIEWS-Panic buying scrambles tech circuitry   
 urn:newsml:reuters.com:*:nL4N2H705L
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 (Editing by Peter Thal Larsen and Karen Kwok)
 ((pete.sweeney@thomsonreuters.com; Reuters Messaging:
pete.sweeney.thomsonreuters.com@reuters.net))