A state-backed Chinese technology firm has submitted an informal bid of $23 billion for Micron Technology, according to several reports.
Tsinghua Unigroup is still discussing the potential deal with Micron executives, according to Xu Jinghong, chairman of its parent company Tsinghua Holdings. A successful bid would represent the largest Chinese takeover of a U.S.-based company and a significant addition to China’s growing semiconductor industry. (Micron recently ranked No. 1 on our list of Top 50 Electronic Design Employers.)
Tsinghua has reportedly offered $21 per share for Micron, one of the world’s largest manufacturers of dynamic access memory (DRAM) chips and NAND chips used for storing data in smartphones and cameras. The bid is taking advantage of Micron’s injured stock prices.
Over the last year, Micron stock has steadily declined due to sluggish global PC sales and the falling price of DRAM chips. But according to recent reports, Micron has rejected the informal bid on the grounds that the deal would never be approved by the U.S. government.
If Micron accepted the bid, the transaction would likely have to pass a review by the U.S. Committee on Foreign Investments, a government organization that looks at the national security implications of such deals. But since DRAM chips are widely used in security and defense technologies, the bid is not likely to be approved.
The Senate-run committee "is always suspicious of state-owned enterprises. That would be a huge obstacle," James Lewis, a security analyst with the Center for Strategic and International Studies, told Yahoo Finance.
Timothy Arcuri, a financial analyst at Cowen, told CNBC that "it's highly unlikely the Justice Department would allow this. DRAM is in a lot of security-related applications. It's in defense-related stuff. It's in enterprise server applications that are storing very sensitive information."
He added, "I think right off the bat, there would be a lot of hurdles from a regulatory point of view."
China is seeking to develop its native semiconductor industry, and the acquisition of Micron would be a significant step forward. According to recent estimates, the country imports almost 90% of its integrated chips, used for manufacturing Chinese televisions, personal computers, and mobile devices.
As a result, China has been investing heavily in integrated chip design and fabrication through a series of strategic mergers and increased funding. Recently, the Semiconductor Manufacturing International Corporation (SMIC), China’s largest semiconductor foundry, signed an agreement with Huawei, Qualcomm, and imec to develop 14 nanometer CMOS chipsets.
Tsinghua Unigroup has been on the leading edge of China’s growth in the semiconductor market. The addition of Micron would supplement a large number of acquisitions and partnerships the company has made in recent years. Last year, Tsinghua bought Chinese chipmakers RDA Microelectronics and Spredtrum in separate deals totaling almost $3.0 billion. In May, the company purchased a controlling 51% stake in Hewlett-Packard’s Chinese data-networking business. In addition, Tsinghua also received a $1.5 billion research investment from Intel last year in order to advance Chinese technology.
The bid from Tsinghua Unigroup Ltd. is not an isolated incident. The semiconductor market has experienced a wave of consolidation over the last several years. Avago Technologies signed a $37 billion agreement, paid in stocks and capital, to purchase Broadcom Corp. earlier this year. And more recently, Intel agreed to buy Altera Corp. for approximately $16.7 billion in cash.