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Singapore's Temasek Makes $1.6 Billion Bid for STATS ChipPAC

Singapore state investor Temasek Holdings is bidding as much as S$2.44 billion (US$1.6 billion) for the remaining 64.4% in the world's No. 4 microchip packager STATS ChipPAC that it does not own.

Analysts said that Temasek's motive for taking the firm private was unclear at this stage, and questioned if the deal's value was fair, given the expected upturn in the semiconductor industry in the second half of this year.

"The question right now is whether the valuation is fair enough for major shareholders like Fidelity to exit," said Daiwa Institute of Research analyst Pranab Sarmah. "With an upturn expected for the chip sector in the second half, fund managers and analysts are adjusting up their earnings forecasts for semiconductor companies, so the 18 percent premium may not be high enough," he added.

Temasek unit Singapore Technologies Semiconductors is offering S$1.75 (US$1.15) per share and S$17.50 for each American Depository Share (ADS) in STATS ChipPAC, which has a market value of S$3 billion.

The offer price represents an 18.2% premium over STATS' closing share price on Wednesday. The offer is conditional on Singapore Technologies Semiconductors obtaining more than 50% of STATS shares. If it gets over 90% of the outstanding shares, it will offer a higher purchase price of S$1.88 per share or S$18.80 per ADS.

STATS ChipPAC's shares are currently trading at about a tenth of their value in March 2000, when it hit an all-time high of S$10.90. The stock closed at S$1.48 on Wednesday, after hitting a year-high of S$1.64 on Monday.

Analysts said they would not rule out private equity firms submitting competing bids for STATS ChipPAC. "STATS has a good business model now, it is cash-flow generating -- last year was the first year the company was cash-flow positive since the merger with ChipPAC -- and this would be attractive to private equity investors," said CIMB-GK Securities analyst Khoo Chen Hsung.

In late November, a private equity consortium led by the Carlyle Group made a US$5.5 billion bid for market leader Advanced Semiconductor Engineering Inc. The exclusive period for negotiations between the two parties has expired and ASE is free to talk to other suitors, but ASE has said it is still in discussions with Carlyle.

STATS shares were suspended from trading on Thursday morning.

Singapore Technologies Semiconductors is also offering to take over STATS' outstanding $115 million convertible notes due in 2008 and $150 million convertible notes also due 2008. "STS has been a long-term shareholder of STATS ChipPAC and continues to believe in the prospects of the company. STS would like to increase its shareholding in STATS ChipPAC," the firm said in a statement.

According to Reuters data, STATS ChipPAC has an issued share capital of about 2 billion on the Singapore Exchange.

As at end-2006, Fidelity Management & Research owns about 10.6% of STATS, followed by Wells Capital Management Inc. with 2.7%, Reuters data showed.