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UTAC Jumps on Bid News, Analysts Say Offer is Fair

Reuters
Wednesday, 27 Jun 2007 | 2:26 AM ET

Shares of United Test and Assembly Center (UTAC) rose as much as 8.35% in Singapore after private equity firm Texas Pacific Group and Asia-focused buyout firm Affinity Equity Partners offered to buy the Singapore microchip tester.

UTAC shares hit S$1.17, a level last seen in February 2004, and the stock was the most actively traded stock on the Singapore bourse with more than 146 million shares changing hands.

The deal, reported by Reuters on Monday citing banking sources, values UTAC at S$1.20 a share. Assuming full exercise of options and conversion of convertible bonds, the deal values UTAC at up to S$2.2 billion ($1.4 billion), the companies said in a statement.

ABN AMRO was the lead adviser for the deal. JP Morgan and Merrill Lynch also advised on the deal.

The deal valued the tech company at 1.6 times its book value, almost half the value of its competitors in Taiwan, but analysts said the price was reasonable.

"We believe that the offer price of 1.6 times price-to-book value is reasonable, given 12% return on equity and positive and improving free cash flow," said Morgan Stanley analysts Sunil Gupta and Pey Herng Yap in a research note.

Shares of UTAC's Taiwan competitor Advanced Semiconductor Engineering trades at 3.12 times book, while Siliconware Precision Industries has a price-to-book ratio of 3.24.

While Morgan Stanley and Credit Suisse recommend that shareholders accept the offer, CIMB-GK analyst Khoo Chen Hsung said that long-term investors should wait for a better offer.

"We believe UTAC deserves a similar takeover valuation as for STAT (STATS ChipPAC) given UTAC's fragmented shareholder base, a superior ROE and stronger earnings growth prospects," Khoo said in a note on Wednesday.

Singapore state investor Temasek in March bid as much as $1.6 billion for Singapore-based STATS ChipPAC , the world's fourth-largest microchip tester and packager.

Analysts also said that UTAC's takeover could mark the start of a consolidation exercise in the Singapore technology sector.

Credit Suisse said that Singapore's plastic players, such as Meiban Group, Sunningdale Tech and Hi-P International are potential takeover targets.

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