Bloomberg News

SK Telecom Left as Sole Bidder for Hynix After STX Pulls Out

September 19, 2011

(Updates with share prices in fifth paragraph.)

Sept. 20 (Bloomberg) -- SK Telecom Co., South Korea’s largest mobile-phone operator, is the only suitor left to bid for a controlling 20 percent of Hynix Semiconductor Inc. after STX Group pulled out.

The South Korean shipbuilding and shipping group dropped out amid global economic uncertainties and concerns over investments needed to keep the chipmaker competitive, STX Corp. said in a statement yesterday. The 146.1 million shares for sale are valued at 3.1 trillion won ($2.7 billion) based on Hynix’s latest closing price.

STX Chairman Kang Duk Soo’s withdrawal removes the only competition SK Chairman Chey Tae Won faced in making a bid in defiance of analysts at brokerages including Morgan Stanley and CLSA Asia-Pacific Markets, who’ve opposed the idea of a phone carrier buying control of a chipmaker. Hynix’s main shareholders, who have failed to sell their stake three times since 2009, said they will discuss how to proceed.

“It’s all become unclear now,” said Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $29 billion. “Pricing is less of a problem in open bidding, but if they sell it to SK Telecom through a private deal, there could be some noise. That will likely be the key issue among creditors.”

Hynix, the world’s second-largest maker of computer-memory chips after Samsung Electronics Co., fell 1.2 percent as of 9:41 a.m. in Seoul trading. STX Corp. rose 2.5 percent. SK Telecom declined 2.3 percent.

‘Reasonable’ Decision

SK Telecom hopes Hynix shareholders will proceed with the sale, Lauren Kim, a Seoul-based spokeswoman for the carrier said by telephone. The company will review the results of its due diligence, the outlook of the chip industry and details of sale conditions to make a “reasonable” decision,’’ she said.

Hynix’s main shareholders will discuss whether they will proceed with their current plan, said Lee Sun Hwan, Seoul-based spokesman for Korea Exchange Bank. Park Seong Ae, a Seoul-based spokeswoman for Hynix, declined to comment on STX’s decision.

“I don’t think there are any other companies interested, so it all depends on what SK Telecom does,” said Song Myung Sup, a Seoul-based analyst at HI Investment & Securities Co.

Middle East Partner

STX said delays in reaching an agreement with its Middle Eastern bidding partner were also a factor that contributed to its decision. STX had been in talks with Aabar, a state-run United Arab Emirates investment company.

Hynix shareholders, led by Korea Exchange Bank, said this month they plan to sell a 20 percent stake that includes 101.85 million new shares and 44.25 million existing ones held by shareholders.

The shareholders, a group of financial institutes that spent $4.6 billion to bail out the chipmaker in the past decade, had planned to receive bids for Hynix by Oct. 24 and select a preferred bidder by the end of October.

Hyosung Corp., the sole bidder in a sale attempt in 2009, walked away from negotiations in November that year, saying speculation that it received political favors to pursue the takeover made it difficult to negotiate a fair acquisition. Two subsequent attempts by creditors to sell their Hynix stake failed after no bidders emerged. In 2002, Micron Technology Inc. scrapped a $3 billion takeover offer after it was rejected by Hynix’s board.

Rebuked by Analysts

SK Telecom shares on Aug. 10 fell to as low as 131,000 won, the lowest close in almost 12 years, tumbling 18 percent over five weeks after the Seoul Economic Daily reported that that SK Group was considering a bid for Hynix. The stock has since recovered those losses.

In the days following SK’s announcement it may bid, analysts at CLSA, Morgan Stanley, JPMorgan Chase & Co. and Samsung Securities Co. cut their investment ratings on SK Telecom, while Daishin Securities Co., Daiwa Securities Group Inc. and Nomura Holdings Inc. lowered their price estimates on the stock. Standard & Poor’s said at the time that purchase would undermine SK Telecom’s credit rating.

SK and STX’s interest in Hynix renewed concerns South Korean business groups known as the chaebol were reviving practices of over-expansion that led to the financial crisis in the late 90s, Shaun Cochran, head of Korea research at CLSA, said in July.

While supporters praise the chaebol for pulling the country out of poverty from the 1950 to 1953 Korean War and transforming it into Asia’s fourth-largest economy, the International Monetary Fund cited the debt-driven chaebol model as part of the reason the nation’s economy landed in a financial crisis at the end of 1997.

Should the disposal amount exceed 2.56 trillion won, it would rank as the largest share sale of a Korean technology company since July 1999, when Hynix bought a majority holding in Hyundai Microelectronics Co., according to data compiled by Bloomberg.

“SK Telecom and shareholders are now going to have to have one-on-one talks,” said Shin Hyun Joon, a Seoul-based analyst at Dongbu Securities Co. Because of reduced competition, “you can’t rule out the possibility that the sale could fall through,” Shin said.

--With assistance from Seonjin Cha in Seoul. Editors: Young-Sam Cho, Subramaniam Sharma

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 editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net; Young-Sam Cho at ycho2@bloomberg.net


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