The speculation has come to an end. Despite being bankrupt, the acquisition of Japan's last remaining player in the DRAM market, had pulled a lot of interest among other market players like Micron, SK Hynix, Global Foundries, Toshiba, Samsung and other PE firms. Finally, Micron that had chased seriously for Elpida has not only brought the deal to closure but has also brought an end to Elpida's acquisition story
BANGALORE, INDIA: What was so special about Elpida’s acquisition? Why were there so many interested parties to buy a bankrupt DRAM manufacturer? There has been a lot of speculation about this deal and finally the deal was closed with Micron buying Elpida for $2.5 billion. The deal was worth $2.5 billion but the buyer of Elpida had to pay $1.75 billion towards Elpida’s creditors and the remaining would have been allocated for the upgradation of Elpida’s facilities.
How did the speculation start?
It is obvious for any loss making company to get merged with any big player in the market who can support them during tough times. But this acquisition had a different story. The speculation started when Elpida sought an equity tie up with U.S. rival, Micron technology. The then loss making Japanese firm was burdened with debt repayments and deteriorating chip market. It was required for Elpida to redeem 45 billion yen ($587 million) in bonds by late March and repay about 77 billion yen. This substantial amount was borrowed under a financial rescue package backed by the government. Elpida’s bank had asked for a plan to improve the company’s financial position.
Analysts felt that Micron could possibly acquire Elpida as it struggles to stay in the competition with South Korean companies. Micron was seen as a strong bidder for this deal, as per analysts. Analysts reiterated that, Elpida will have lesser possibilities of getting a strategic partner to their business.
Considering the prevalent debt situation in Elpida, had the deal been on the basis of ‘financial investment for technology’, there would have been many takers for this deal. But that was not the case. With all these factors, Micron seemed to be the acquiring company. No doubt, SK Hynix, Samsung and Global Foundries had also expressed interest in Japan's last remaining player in the DRAM market.
Who were the other interested parties?
The interest of many market players in the segment made the Elpida acquisition story quite an interesting one. Before Elpida filed for its bankruptcy, the loss making DRAM vendor was initially speculated to get merged with Toshiba, the company which had sold its DRAM facilities in US to Micron, a decade ago. According to a report on Japanese newspaper Yomiuri, Elpida was in talks to merge with Micron and Taiwan based Nanya Technology.
After Elpida had filed for its bankruptcy, it seemed like a good opportunity for Samsung and Micron to grab their assets and market share. This acquisition was not a usual deal from various interested companies who were calculating the merits and demerits of acquiring a bankrupt company which portrayed great potential. In order to play safe, some companies were even lobbying for a joint bid.
Earlier Toshiba had reportedly approached SK Hynix for a joint bid to rescue Elpida out of the financial turmoil but somehow the talks between the two companies did not fructify and finally, Toshiba was out of the race. After Toshiba dropped out of the bidding process, there were few other contenders for this acquisition- SK Hynix, Micron and private equity firms TPG Capital LP and Hony Capital.
During May, Micron was reported to be showing serious interest towards acquiring Elpida and by that time SK Hynix had dropped its plans to bid for Elpida.
What did Micron see in Elpida, which others did not?
Not that, other bidders lacked with their business acumen. Probably, they could not match their requirements which Elpida could have complemented. Micron had expected that this acquisition would give a 25 percent share of the global market for DRAM chips. Micron saw it as an opportunity to reach the second spot. Moreover, the US based company would have also got access to Elpida's technology.
Despite showing interest in Elpida, Micron’s bid of more than $2.5 billion was considered to be too low for the bankrupt DRAM vendor. Dissatisfied with Micron offer, Elpida started negotiating with SK Hynix and Global Foundries. It was rumoured that, Globalfoundries was interested in buying Elpida's main fab in Hiroshima, Japan, while Hynix was interested in buying the firm's share of Rexchip Electronics Corp., a joint venture between Elpida and Powerchip Technology.
But as Micron’s bid to buy Elpida was filed with the Tokyo District court, if Hynix and Globalfoundries would have agreed to pay a higher price than Micron, it would have required an approval from the Tokyo district court. As per a recent Nikkei report, Micron had planned to invest about 100 billion yen ($1.26 billion) in Elpida's fabs, including Elpida's flagship fab in Hiroshima prefecture.
Finally, Micron has got Elpida that too, for the price range which it had offered since beginning. The acquisition would double the manufacturing capacity of Micron and take its share of the global D-Ram market to 24 per cent, surpassing South Korean rival Hynix’s 23 per cent. Through this acquisition, Micron can encash Elpida’s strong presence in mobile DRAM which primarily targets smartphones and tablets. With its strong presence in the enterprise DRAM for PCs, servers, NAND and NOR non-volatile memory, this acquisition is seen as an add-on to Micron.
Micron definitely has to make some additional investment on Elpida’s existing facilities but it needs to leverage the technology available with Elpida that had battled against tumbling prices and loss of market share to South Korea's better-funded giants.