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UPDATE 2-Micron sees Elpida deal closing despite challenge

Friday, 12 Oct 2012 | 11:29 AM ET

(Adds detail on market outlook, background on industry)

By Noel Randewich

SAN FRANCISCO, Oct 12 (Reuters) - Micron Technology's chief executive said he expects to complete the acquisition of failed Japanese memory chipmaker Elpida Memory Inc in the first half of next year, despite opposition from a group of bondholders.

Micron, which is losing money due to a crumbling PC industry, wants to create larger economies of scale and offered in early July to buy Elpida for about $750 million in cash and to pay creditors a total of $1.75 billion in annual installments through 2019.

However, a group of Elpida bondholders say Micron is offering too little for the chipmaker.

Low prices and steadily rising investment costs to implement new technologies have been driving consolidation in the highly competitive and cyclical memory chip industry.

Micron's purchase of Elpida, an Apple supplier that makes chips for smartphones, tablets and computers, would lift the U.S. company into second place behind market leader Samsung Electronics in the global market for DRAM chips.

A committee set up by a Japanese court to examine Elpida's proposal to be taken over by Micron, along with a proposal by the bondholders, is expected to make a recommendation by Oct. 29, later than earlier estimated.

"We still expect to close this in the first half of 2013. Exactly when that is, I can't say with a lot of precision because I think really the key domino is -- when we get regulatory approval from all the concerned countries," Micron Chief Executive Mark Durcan said at an analysts event in Boise, Idaho, where Micron is based.

Slow economies in Europe and the United States and an oversupply of NAND chips used by Apple and other manufacturers of mobile devices have hammered prices and contributed to losses for Micron, which is the only major U.S. memory chipmaker.

Consumers' growing preference for smartphones and tablets instead of laptops has been hurting PC manufacturers, which traditionally have been major buyers of DRAM chips. Two weeks ago, Micron posted lower-than-expected results for the August quarter because of weakness in the PC market.

Micron makes both NAND chips and DRAM chips. The company said at the event on Friday that recent DRAM pricing has been slightly lower than expected, while recent NAND pricing has been slightly higher than expected.

To offset a declining PC memory business, Micron, Samsung and SK Hynix are focusing more of their resources on developing better -- and more profitable -- memory chips for mobile devices.

In a sign of its growing focus on mobile, Micron recently hired Michael Rayfield, formerly a senior executive at Nvidia

who was heavily involved in mobile processors aimed at tablets and smartphones.

The Elpida bondholder group, which says it holds about $1.2 billion in Elpida bonds, has submitted a plan to the Tokyo court that values the chipmaker at more than 300 billion yen ($3.8 billion), well above Micron's offer.

The bondholders did not put forward an equity investor, although they offered to lend Elpida 30 billion yen to help the chipmaker restructure.

"When you think about who has the wherewithal to provide a meaningful return to the secured creditors on a go-forward basis it's the Micron offer," Durcan said. "The other offers out there ... really don't give much assurance that there will be anything for anybody."

Shares of Micron were down 1.04 percent at $5.68. ($1 = 78.34 Japanese yen)

(Reporting By Noel Randewich; Editing by Theodore d'Afflisio)

((noel.randewich@thomsonreuters.com)(Twitter handle: @randewich)(415)(677 2542)(Reuters Messaging: noel.randewich.thomsonreuters.com@reuters.net))

Keywords: MICRONTECHNOLOGY/

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