June 25 (Bloomberg) -- MediaTek Inc., Taiwan’s largest chip designer, climbed to a three-month high in Taipei after saying it agreed to buy MStar Semiconductor Inc. in a transaction valuing the smaller rival at $3.8 billion.
MediaTek rose as much as 5.1 percent to NT$288, the highest since March 27, before trading at NT$282.50 at 10 a.m. local time. MStar climbed its 6.9 percent limit to NT$195. MediaTek said its offer was 20 percent higher than MStar’s June 22 closing price.
MediaTek and MStar, both Hsinchu-based makers of chips used in televisions and mobile phones, agreed on a tender offer for as much as 48 percent of the smaller company’s shares as a precursor to a full merger that would create the world’s fourth-largest chip designer, according to Nomura Holdings Inc. The deal is the fifth-largest semiconductor acquisition in the past decade, according to data compiled by Bloomberg, and would boost the companies’ competitiveness and increase bargaining power with suppliers, Deutsche Bank AG wrote.
“Industry consolidation between these two leading fabless companies will ease competition especially for mid- to high-end product segments and thus is good for margins of the two companies,” Jessica Chang, a Taipei-based analyst at Deutsche Bank, wrote June 22 after the announcement. “This deal is the right action to take by both companies, which is going to have a profound long-term implication toward the industry.”
MediaTek offered 0.794 of a new share plus NT$1 ($0.03) in cash for each MStar share held as part of a tender offer, with the two companies then proceeding toward a full merger pending shareholder and regulatory approval, they announced June 22. The deal values MStar at $3.8 billion and offers a 20 percent premium, MediaTek Chief Financial Officer David Ku said.
Yuanta Financial Holding Co. raised MediaTek to buy and increased its 12-month price target 42 percent to NT$340. Fubon Financial Holding Co. raised the stock to add from reduce with a six-month target of NT$330.
Merging the two companies would create the world’s fourth-largest chip designer behind Qualcomm Inc., Broadcom Corp. and Advanced Micro Devices Inc., Aaron Jeng, a Taipei-based analyst at Nomura, wrote today. The combined entity would control 80 percent of the global market for chips used in TVs, and more evenly distribute sales among the two companies’ major product groups of phones, television and DVD chips, he wrote.
MediaTek, founded in 1997 and Taiwan’s 10th largest listed company by market value, has posted seven consecutive quarters of declining sales amid competition from MStar and Shanghai-based Spreadtrum Communications Inc. and RDA Microelectronics Inc.
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