Micron Technology Inc. (MU) agreed to buy bankrupt Japanese chipmaker Elpida Memory Inc. in a transaction valued at 200 billion yen ($2.5 billion), gaining memory chip- making assets that may help it avert price swings that fueled four straight quarters of losses.
Micron will pay 60 billion yen in cash at the closing of the deal, while the remaining 140 billion yen in future annual installments through 2019 will come from cash flow generated by Boise, Idaho-based Micron’s payment for chips made by Elpida, according to a statement today. Micron shares rose.
Acquiring Elpida, an Apple Inc. supplier, would double Micron’s share of the global market for DRAM, the most widely used memory chips in personal computers, to about 24 percent. That would help Micron vie with industry leader Samsung Electronics Co. while giving it greater control over supply gluts that have caused it to report losses amid falling prices.
“We’re pretty excited about where this puts us in the memory industry as a strong number two,” Micron President Mark Adams said in a telephone interview. Micron has remained conservative with its use of debt and is still “within the tolerances of where we like to be,” he said.
The deal will settle all of Elpida’s debt. Micron, the largest U.S. maker of computer memory, won approval from the Tokyo District Court in May to negotiate to buy Elpida’s entire business after the Japanese company held two rounds of bidding. Today’s agreement is subject to court approval, which Elpida will seek in August, and sign off from Elpida creditors. The transaction will close in the first half of 2013, Micron said.
“This is a transformative acquisition,” said Dan Berenbaum, an analyst at MKM Partners in Stamford, Connecticut, who recommends buying Micron shares. “The structure of the deal is great. Only $1.1 billion in cash upfront is much lower than most were expecting.”
Micron rose 3.8 percent to $6.55 at 4 p.m. in New York trading, its fifth consecutive gain. The stock has gained 4.1 percent this year.
In a related transaction, Micron also agreed to buy Taiwan- based Powerchip Technology Corp. (5346)’s 24 percent stake in Rexchip Electronics Corp. (4932) for about NT$10 billion ($334 million). The deal will give Micron control of manufacturing facilities that will boost its output by about 200,000 silicon wafers per month, or 50 percent.
Elpida sought protection from creditors in February after prices of DRAM chips plummeted. The lower prices and a stronger yen, which erodes the value of repatriated earnings from overseas, led the company to report a fifth straight quarter of losses. SK Hynix Inc. (000660), the only company that had publicly expressed interest in buying Elpida at the time, decided not to participate in the second round, the Icheon, South Korea-based manufacturer said May 4.
President Yukio Sakamoto is heading Elpida’s restructuring efforts as a court-appointed trustee. The company plans to submit its revival plan by Aug. 21.
Micron reported a fourth consecutive quarterly loss on June 20 after sluggish demand for personal computers dragged down chip prices. The company had a net loss of $320 million in the three months that ended May 31, compared with profit of $75 million a year earlier, Micron said.
Elpida’s business is improving, Micron Chief Financial Officer Ron Foster told analysts on a conference call. The transaction will begin to contribute to cashflow and earnings per share within twelve months, he said.
Under the terms of the deal, Micron is getting factories at less than one third of the cost of building them from scratch and expects to be able to reduce its spending on plants and equipment, Chief Executive Officer Mark Durcan said.