China's Tsinghua Prepares $23 Billion Bid For U.S. Chip Maker Micron: Sources

China’s state-backed Tsinghua Unigroup Ltd is preparing a $23 billion bid for U.S. memory chip maker Micron Technology Inc (MU.O), in what would be the biggest Chinese takeover of a U.S. company, people familiar with the matter said.

The technology conglomerate is prepared to bid $21 per share for Micron, a 19.3 percent premium to the stock’s close on Monday. The offer could come as early as Wednesday, a person close to Tsinghua told Reuters, although a Micron spokesman said it had not received an offer.

A successful bid would consolidate Tsinghua Unigroup’s position as a champion for China’s technology development, after it struck deals and research partnerships with international firms in the semiconductor industry.

The company is controlled by Tsinghua University in Beijing, which counts President Xi Jinping among its alumni, and is backed by China’s central government.

China has attached strategic importance to the development of domestic semiconductor, server and networking equipment industries amid fears of foreign cyberspying.

But any foreign takeover of Idaho-based Micron – the last major U.S.-based manufacturer of DRAM chips used in personal computers – would likely have to pass a review by the Committee on Foreign Investment in the United States, which looks at the national security implications of such deals.

Vincent Gu, a Shanghai-based analyst at iSupply, said the chances of the U.S. government approving the deal would be “next to zero” given the political hurdles. “It’s difficult to purchase the critical technology. China should stay firmly grounded and persevere with researching the technology itself,” Gu said.

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GREAT LEAP
Micron makes both dynamic random access memory (DRAM) chips and NAND memory chips for storing music, pictures and other data on smartphones, cameras and other mobile devices.

Acquiring Micron’s cutting-edge memory manufacturing technology would be a major advance for China’s modest but improving chip industry headed by Tsinghua Unigroup.

With roots as a private equity fund, Tsinghua Unigroup transformed into a serious semiconductor player after it bought Chinese chipmakers RDA Microelectronics and Spreadtrum in deals totaling $1.6 billion last year. When Tsinghua Unigroup received a $1.5 billion investment from Intel Corp (INTC.O) in October, the two sides pledged to cooperate on research and further Chinese technology.

The Wall Street Journal first reported early on Tuesday that Tsinghua Unigroup was prepared to submit a bid, citing people familiar with the matter.

CHIP CONSOLIDATION
None of the world’s top memory chip manufacturers are based in China, although South Korea’s SK Hynix (000660.KS) has a plant in Wuxi and Samsung Electronics Co Ltd (005930.KS), the global market leader also from South Korea, last year began full-scale production at a new NAND chip factory in Xi’an.

Micron has manufacturing plants and a sales office in Taiwan, and indirectly holds a 20 percent stake in Inotera Memories Inc (3474.TW), a joint venture with Nanya Technology Corp (2408.TW). If Micron became a Chinese-owned company, Taiwanese rules would require it to re-submit its investment application for review.

The memory business in recent years has seen rapid consolidation. In May, Hewlett-Packard Co (HPQ.N) sold a controlling 51 percent stake in its China-based data-networking business to Tsinghua Unigroup for at least $2.3 billion, forming a partnership designed to create a Chinese technology powerhouse.

Last year Intel acquired a stake in two mobile chipmakers through another deal with Tsinghua Unigroup, which owns the companies.

A Micron deal could also face scrutiny from China’s National Development and Reform Commission, which must approve outbound investments worth more than $2 billion or those in sensitive industries.

Billionaire hedge fund manager David Einhorn said in an investor letter on Monday that Micron would be worth more than Netflix Inc (NFLX.O) within the next few years. Netflix was worth $42.9 billion at Monday’s close.

REUTERS