Bloomberg News

Hyundai Heavy Rules Out Bid for Hynix Semiconductor Stake

July 06, 2011

(Updates with closing share prices in second paragraph.)

July 6 (Bloomberg) -- Hyundai Heavy Industries Co. ruled out bidding for a controlling stake in Hynix Semiconductor Inc., fueling speculation shareholders will fail to unload their stake in the chipmaker for the fourth time in two years.

Hyundai Heavy, the world’s largest shipbuilder, jumped 6.4 percent and Hynix tumbled 5.4 percent in Seoul trading. The South Korean shipbuilder won’t submit a letter of intent for the stake because adding the chipmaker to existing businesses would create “little synergy,” Ulsan-based Hyundai Heavy said in a statement today.

The decision may be a blow to Hynix shareholders including Korea Exchange Bank, who are preparing to begin the fourth attempt since 2009 to sell their remaining holdings in the chipmaker they bailed out in 2001. Any bidders would vie to control the world’s second-largest maker of semiconductors known as DRAM, which go into personal computers and smartphones.

“Hyundai Heavy’s decision may make investors skeptical that Hynix will finally find a new owner,” said Heo Pil Seok, chief executive officer of Seoul-based Midas International Asset Management Ltd., which oversees $2.1 billion in assets. “Hyundai Heavy investors are cheering over the company’s correct decision not to enter into a totally unrelated business.”

Shareholders to Proceed

SK Group, parent of the nation’s biggest oil refiner and mobile-phone operator, said it hasn’t decided whether to bid.

Hynix shareholders, which hold a 15 percent stake, will proceed with their plan to receive preliminary bids for part or all of their shares by the July 8 deadline, Kim Sun Gyu, a spokesman for Korea Exchange Bank, said by telephone after Hyundai’s announcement.

Based on current stock prices, the disposal of the stake would be the largest share sale of a South Korean technology company since July 1999, when Hynix bought a majority holding in Hyundai Microelectronics Co. for 2.56 trillion won ($2.4 billion), according to data compiled by Bloomberg.

Hynix dropped to 26,500 won, giving it a market value of 15.7 trillion won, at the 3 p.m. close in Seoul. Hyundai Heavy gained the most in more than a month to 484,000 won.

Hyundai Heavy said June 8 it was looking “with interest” at the sale of the Hynix stake. The shipbuilder was planning to submit a preliminary bid by July 8, MoneyToday reported yesterday.

Hyundai Group

The decision to scrap bidding “took the steam out of the takeover competition,” said Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $29 billion.

Hyosung Group, Dongbu Group and LG Group aren’t planning to bid for Hynix, the companies said in regulatory filings in response to the stock exchange’s request for clarification on market speculation.

Kim Hong Gyun, an analyst at Dongbu Securities Co., said there has been speculation that the STX Group may bid for Hynix. No decision on bidding has been made, the group, whose units include STX Offshore & Shipbuilding Co., said in an e-mail today. STX Offshore shares fell 5.9 percent, the most in three months.

Hyundai Heavy’s interest in Hynix was driven by a desire to rebuild South Korea’s family-owned conglomerates, known as chaebol, rather than any business rationale, according to Mirae Asset Securities Co. and CLSA Asia-Pacific Markets. The shipbuilder and Hynix’s predecessor were both part of the Hyundai Group.

Hyundai Legacy

Hynix, formerly Hyundai Electronics Industries Co., severed ties with the Hyundai Group in 2001 when creditors took over the company. Hyundai Heavy split from the group a year later.

Hynix took over Hyundai Microelectronics, previously known as LG Semicon Co., after South Korea’s government forced companies to merge in the wake of the 1997-1998 financial crisis.

Hynix’s creditors, seeking to recoup billions of dollars spent bailing out the company, failed twice last year to attract bidders. Hyosung Corp., the sole bidder in the first attempt, walked away from talks in November 2009 saying speculation that it received political favors to pursue the takeover made it difficult to negotiate a fair acquisition.

Closing the Deal

The shareholders aim to receive final bids by September, Ryu Jae Han, chief executive officer of Korea Finance Corp., one of the creditors, said June 10. They aim to close the deal, including payment, by the end of this year, he said at that time.

Hynix needs to be sold to a company with a stable cash flow, given the volatile nature of the chip business, Im said.

Hynix posted record sales and profit in 2010, helped by cost cuts and demand for chips used in mobile devices, leading the company to pay a cash dividend to investors for the first time. It reduced debt by more than 1 trillion won last year and had more than 2 trillion won in cash, according to the company.

The chipmaker plans to spend about 3.4 trillion won this year expanding production and upgrading factories, after investing 3.38 trillion won in capital expenditure in 2010.

--With assistance from Kyunghee Park in Singapore and Saeromi Shin in Seoul. Editors: Anand Krishnamoorthy, Young-Sam Cho

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net; Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net; Chitra Somayaji at csomayaji@bloomberg.net


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