South Korea’s SK hynix dropped out of the race to buy Elpida Memory Inc., dimming the prospects for a deal that the ailing Japanese chipmaker was counting on to sustain operations and repay creditors. Elpida filed for bankruptcy protection in late February with 448 billion yen ($5.6 billion) in liabilities. SK hynix decided to pull out as the deal would not “strategically benefit” the company, Reuters reported Friday. TPG Capital and China’s Hony Capital had intended to place a joint bid for Elpida in the final bidding round, sources told Reuters previously.
(Reuters) – South Korea’s SK hynix dropped out of the race to buy Elpida Memory Inc, dimming the prospects for a deal that the ailing Japanese chipmaker was counting on to sustain operations and repay creditors.
U.S.-based Micron Technology and SK hynix were among a handful of chipmakers and funds that have shown interest in acquiring Elpida, which filed for bankruptcy protection in late February with 448 billion yen ($5.6 billion) in liabilities.
“With SK hynix pulling out, the deal may be protracted or even falter as buyers will push for lower prices,” said Choi Do-yeon, an analyst at LIG Investment & Securities.
The withdrawal sent the shares of the South Korean chipmaker rising to a two-week high. The final round of bidding for Elpida closed on Friday.
SK hynix decided to pull out as the deal would not “strategically benefit” the company, SK Group’s Chairman Chey Tae-won told reporters after a board meeting. He did not give details.
TPG Capital LP and China’s Hony Capital had intended to place a joint bid for Elpida in the final bidding round, sources told Reuters previously.
A Tokyo-based TPG spokesman declined to say if the two private equity firms submitted a joint bid on Friday.
“We have two likely scenarios – either Micron or Hony-TPG acquires Elpida or the deal falls apart,” said CW Chung, a Seoul-based Nomura Securities analyst.
“Micron may generate greater synergies with Elpida, compared with Hynix, yet both bidders (Micron and Hony-TPG) are likely to request a debt reduction from creditors,” he said.
The withdrawal of SK hynix follows protests by a group of Elpida debt holders who said they may thwart the auction if Elpida’s trustees agree to a reported selling price of 150 billion yen.
The bond holders said they could submit a rival reorganisation plan if the bankruptcy trustees agreed to a low-ball bid that would “unintentionally transfer great value to the winning sponsor.”
Elpida is the world’s No.3 maker of dynamic random-access memory (DRAM) chips, trailing Samsung Electronics and SK hynix with a market share of around 12 percent.
Shares in SK hynix jumped as much as 6.1 percent to 28,900 won on Friday, the highest since April 19. The stock closed at 28,150 won, up 3.3 percent, compared with a 0.3 percent fall in the wider market.
SK hynix last month posted an operating loss of 260 billion won ($227.8 million) for the three months ended March, its third straight quarterly loss, as tumbling prices of DRAM chips eroded earnings of chipmakers including Elpida.
Prices of DRAM chips used in personal computers have declined due to slower PC sales. Consumers are increasingly switching to tablets and smartphones that use mobile DRAM and NAND-type flash memory chips.
SK hynix said last month it expected DRAM chip prices to rebound from the second quarter, helped by reduced supply from troubled makers including Elpida.
Elpida reported losses for five straight quarters, and its failure was the largest for a Japanese manufacturer ever. (By Miyoung Kim)