SK Telecom Is Left as Sole Bidder for Hynix Semiconductor as STX Pulls Out

SK Telecom Co., South Korea’s largest wireless carrier, was the only suitor left to bid for a controlling stake of Hynix Semiconductor Inc. (000660) as shareholders stuck to their sale plan even 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 20 percent stake for sale, totaling 146.1 million shares, is valued at 3.2 trillion won ($2.8 billion) based on Hynix’s latest closing price.

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

“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,” said Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $29 billion. “That will likely be the key issue.”

Hynix, the world’s largest maker of computer-memory chips after Samsung Electronics Co., rose 3.1 percent to 21,650 won at the 3:00 p.m. close in Seoul trading. STX Corp. closed unchanged while SK Telecom declined 2.3 percent.

‘Reasonable’ Decision

Lauren Kim, a Seoul-based spokeswoman for SK Telecom, declined to comment on Hynix shareholders’ announcement today. The carrier will review the results of its due diligence, the outlook for the chip industry and details of sale conditions to make a “reasonable” decision, she said yesterday.

The stakeholders will proceed to sell their stake and receive a final bid by Oct. 24 as scheduled, Korea Exchange Bank (004940) said in an e-mailed statement today.

The sale’s outcome now “depends on what SK Telecom does,” said Song Myung Sup, a Seoul-based analyst at HI Investment & Securities Co.

SK Telecom appears more likely to be selected as the preferred bidder, Fitch Ratings said in a statement today.

Middle East Partner

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

Park Seong Ae, a Seoul-based spokeswoman for Hynix, declined to comment on STX’s decision.

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 institutions 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. (004800), 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. (MU) 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 most of those losses.

In the days following SK Telecom’s announcement it may bid, analysts at CLSA, Morgan Stanley, JPMorgan Chase & Co. (JPM) and Samsung Securities Co. cut their ratings on the stock, while Daishin Securities Co., Daiwa Securities Group Inc. and Nomura Holdings Inc. (8604) lowered their price estimates.

‘May Be Impaired’

Fitch Ratings said today if SK Telecom buys the stake with debt, “the company’s credit strength may be impaired,” echoing Standard & Poor’s July statement that the purchase would undermine the phone company’s credit rating.

SK Telecom 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.

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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