By Kim Yoo-chul
While facing the challenge of garnering enough funds, STX plans to sell assets and tie up with a Middle East-based sovereign wealth fund in what mergers and acquisitions (M&A) experts say is an Abu Dhabi fund to finance the acquisition of Hynix.
The Hynix labor union is seeking to block unconfirmed foreign investment, while reports assert that the government wants to limit involvement by Middle Eastern sovereign wealth funds, citing the chipmaker’s strategic importance.
``The Hynix labor union is strongly against moves to finance the acquisition with unconfirmed foreign capital,’’ said the union in a statement Thursday.
The statement added that the union of the world’s second-biggest computer memory chipmaker also prefers a bidder who has ``very solid’’ financially as the chip business is cyclical and cash-intensive according to macro-economic moves.
This is the first official comment made by the Hynix labor union after SK Telecom and STX entered the fray to buy an estimated $2.3 billion stake, raising expectations for a successful sale by creditors for the chipmaker in its third attempt.
SK Telecom seems in a better position over shipbuilding-focused conglomerate STX Group for the acquisition of Hynix Semiconductor.
The two local bidders are currently checking out Hynix fact-sheets, such as facility details at Hynix factories in South Korea and China, officials said.
STX Chairman Kang Duk-soo has met with Hynix Vice President Park Sung-wook as an apparent move to confirm Hynix capabilities in chipmaking, and its overall market outlook, though senior Hynix spokesman Park Hyun declined to confirm the meeting.
SK Telecom spokesman Won Jong-rook declined to comment about the statement by the Hynix labor union, citing company policy to not discuss key pending issues.
But SK sources said the statement is more than welcome for the nation’s top mobile carrier. They add the carrier is desperate to find new engines of growth, especially in China, amid stalled corporate growth in SK’s home turf.
``As of the end of July, SK Telecom’s cash-equivalent assets totaled over 1.5 trillion won and we also don’t see any big hurdles in raising an additional 1 trillion won in cash by the end of this year,’’ said one high-ranking SK source.
The source, who asked not to be named, said its top decision makers are eager to win the deal and noted that the split of SK Telecom into two independent legal entities as a strategy to better handle the semiconductor business is one option.
SK’s legal advisor is the nation’s top-tier law firm, Kim & Chang, while its accounting advisor is Samjong KPMG. Bank of America-Merrill Lynch and the Australia-based Macquarie are its finance advisors.
``In 2002, the Hynix labor union had blocked moves to sell the company to Micron Technology of the United States. There shouldn’t be any political pressure this time,’’ said an unnamed union official.
``Worries over technology leaks and national wealth stemming from uncertain foreign capital should be excluded,’’ said the official, adding the statement doesn’t necessarily mean the union is sided with or against a specified bidder.
Since Hynix is the industry’s top-tier semiconductor firm, with the capability to handle more complex chipmaking technologies along with market leader Samsung Electronics, Hynix creditors and the government worried about a possible technology leak if an overseas fund entered into the deal.
``Big chunks of foreign investment in Hynix are very unlikely as Hynix creditors and the South Korean government don’t want to grapple with a `technology leak’ by accepting foreign capital,’’ said a high-ranking creditor source, asking not to be identified.
Funds in the Middle East have been investing heavily to expand their non-oil business portfolios. Although, the funds don’t have strong interests in volatile memory chips, they want to know more about Hynix via STX, according to officials.
``STX Group is being asked to soothe investor concerns over the deterioration of its financial soundness amid weaker-than-expected shipbuilding demand and uncertainties over its China business,’’ said another banking source.
``For STX, racing for Hynix could be another good reason to justify its moves to sell non-profitable and non-core assets.”
In a move to defend its position, the shipping-to-shipbuilding STX released a statement that claims a plan to limit foreign investment by the government is groundless.
``The rule to limit foreign investment at a maximum 25 percent in the Hynix deal doesn’t exist. We checked with the government and Hynix creditors,’’ said Lee Sung-hee, a spokesman for STX.
STX said it plans to form a consortium with a fund in the Middle East to acquire the Icheon, Gyeonggi Province-based chipmaker as scheduled, it said in the statement.
``STX will fully control the management rights of Hynix, while the fund will just exist as a financial investor. Since this is the case, there are no worries over a technology leak,’’ said Lee.
STX plans to announce the name of its financial partner before September, according to the statement.