LG, foreign players to vie for HiTek
By Kim Yoo-chul
LG Group, GlobalFoundries (GF) of the United States, TowerJazz Semiconductor of Israel and HuaHong Grace Semiconductor (HGS) of China are competing to buy Dongbu HiTek, the semiconductor unit of Dongbu Group, according to sources familiar with the issue Sunday.
The sources said that the Korea Development Bank (KDB), the main creditor bank of Dongbu HiTek and a lead manager for the deal, recently held a “kick-off meeting” with Nomura Securities, a co-lead manager, and decided to invite “limited potential buyers” to participate.
“GF, LG and TowerJazz could be categorized as the leading contenders for HiTeK, while HGS is regarded as the runner-up. SK hynix is also on the candidate list,” said an KDB official by telephone.
“Although chances are low, Semiconductor Manufacturing International Corp. (SMIC) of China is also in internal talks on whether to join the bidding,” he added.
The KDB official said TowerJazz has also approached over the acquisition, although officials at Dongbu declined to confirm this.
In a move to ease its liquidity shortage, Dongbu Group is seeking to sell 37.16 percent of its stake in Dongbu HiTek, whose other shareholders are Dongbu CNI and Dongbu Construction.
The controlling stake is valued at some 120 billion won. But KDB expects the sales value will reach around 160 billion won, including the managerial rights premium.
“By the end of this month, the bank will send an official letter to potential buyers and plans to complete the deal by the end of the first half of the year,” said another official who is well informed about the deal by telephone.
LG officials said the acquisition of HiTek will help the group strengthen its portfolio in logic chips and cut its heavy dependence on Taiwan’s TSMC for chip outsourcing.
“There’s no cash burden for an acquisition. We may use HiTek’s distribution channels in China, while LG Electronics, a key unit of LG Group, can improve its own capabilities for logic chips, widely used in smartphones and connected TVs,” an official at one of LG’s technology affiliates said.
“The global smartphone market is being saturated and demand for budget models will rise, so there is a need to acquire the Dongbu unit,” he added.
Dongbu HiTek is a leader in developing analog and mixed-signal processing technologies. It provides chips based on a foundry basis, meaning Dongbu only produces chips with designs provided by its clients.
It produces system-level chips at the 90 nanometer level. Its chips also serve applications in a range of electronic products, including TVs, computers, and mobile phones, as well as automobiles and industrial systems.
Dongbu HiTek has been supplying its driver integrated circuit chips to LG Display, the display-making affiliate of LG, based on designs provided by the world’s biggest LCD panel supplier.
GF, which is funded by an Abu Dhabi-based capital firm, is aiming to diversify its business profile beyond high-end computer processing units by securing Dongbu’s analog chip-making processes, said the sources.
“For GF, money really doesn’t matter. As KDB has decided to invite foreign companies as well, GF will be much more aggressive in the HitTek takeover,” said a senior fund manager from a Europe-based investment bank in Seoul.
For similar reason, HGS and SMIC of China aim to boost their output in chip-manufacturing on a contractual basis on the back of Beijing’s heavy support for the semiconductor industry.
“Chinese foundry manufacturers are boosting capacity. Dongbu could be very attractive for them. One good sign is that KDB plans to sell the controlling HiTek stake even to a Chinese firm.
SK hynix, the semiconductor affiliate of SK Group, did not rule out the possibility of joining the bidding.
“Most of Dongbu’s product portfolio overlaps with those of SK hynix. The acquisition of Dongbu means an expansion of output in conventional chips not premium ones,” said an official at SK hynix.
“At our M8 line, we are already manufacturing some chips that the Dongbu affiliate is producing. But it’s too early to say that SK hynix will not join the bid. Chances are low but the situation is subject to change.”
Last year, Dongbu HiTek posted an operating loss of 11.9 billion won on revenue of 493 billion won. It recorded a net loss of 83.3 billion won.
HiTek has not reported any profit for the last 16 years, though it was narrowing down its operating losses. In 2010, losses reached 281 billion won.