TrendForce Says Tsinghua Unigroup’s Bid on Micron Shows China Extending Its Efforts in Domestic Semiconductor Sector

On October 14, 2014, China’s Ministry of Industry and Information Technology (MIIT) announced the establishment of the National Integrated Circuitry Industry Investment Fund. This fund shows China’s intention of building a domestic semiconductor sector with the DRAM industry as the cornerstone. There has been incessant merger activities since then, and China is showing its strong determination to carry out its mission, whether its efforts are publicly known as in SummitView Capital’s acquisition of ISSI or hidden as in the recruitment of industry talents. 

The latest in this series of dealings is Tsinghua Unigroup’s bid to acquire Micron on July 14 with an offer totaling US$23 billion. If this deal were carried out, it would be the largest Chinese takeover of a U.S. company on record. 

Investigation by DRAMeXchange, a division of TrendForce, confirms that Tsinghua Unigroup did submit a bid, but this was just the initial stage of a long and difficult negotiation. The proposal to sell the company will have to be first passed by Micron’s board of directors and then agreed by the shareholders. According to U.S. government’s policy on the export of high-tech products, the Committee on Foreign Investment in the United States (CFIUS) will also review the deal and decide if it affects the U.S. national security. Since the semiconductor sector is deemed vital to U.S. national security, CFIUS has the power to stop the transaction. 

Intel presents another interesting factor in the Micron acquisition. In addition to DRAM products, Micron also develops NAND flash technology with Intel. Therefore, Tsinghua Unigroup will have to negotiate with both Micron and Intel when it comes to the transfer of NAND flash technology. Another reason why Intel is crucial to this deal is that it already made a strategic alliance with Tsinghua Unigroup. Intel purchased a 20% stake in Tsinghua Unigroup for US$1.5 billion in September 2014, so there is a chance that Tsinghua will be able to obtain both DRAM and NAND flash technologies at once if the Micron acquisition goes through. Such scenario will motivate the U.S. government to scrutinize this deal very closely. 

In terms of financing, Tsinghua Unigroup’s current market cap is about 47 billion yuan RMB, or US$7.6 billion. Buying Micron at US$23 billion will require financial support from other investment funds or consortiums as Tsinghua Unigroup evidently lacks the capital to do the takeover by itself. However, China is presumably set on growing its semiconductor sector, so the Chinese government will employ all the necessary national resources to bring about successful industry mergers. State-backed funds for instance might even come to Tsinghua Unigroup’s assistance. Excluding the concerns of the U.S. government, the Micron acquisition is financially feasible.