Spreadtrum Communications Inc., a Chinese mobile-chip maker, surged to a record in New York after agreeing to a $1.78 billion takeover in the largest proposed acquisition of a semiconductor maker in about a year.
Tsinghua Unigroup Ltd., a Chinese state-owned company backed by Tsinghua University, will pay $31 per ADR, 8.8 percent more than it offered last month for the Pudong, China-based company. The American depositary receipts jumped 13 percent to $29.76, the highest since trading began in 2007.
The bid, which Spreadtrum and Tsinghua valued at $1.78 billion, is equivalent to 11.1 times earnings before interest, taxes, depreciation and amortization, exceeding the median ratio of 10.4 in a survey of almost 90 comparable deals over the past decade, according to data compiled by Bloomberg. A takeover would allow the Chinese government to boost its 3G network offerings using Spreadtrum’s semiconductor technology, according to Jay Srivatsa, an analyst at Chardan Capital Markets.
“China is definitely trying to build up its technology expertise and 3G prowess,” said Srivatsa, who is ranked first among 17 analysts who cover the stock after his recommendations delivered the best total returns over the past year, data compiled by Bloomberg show. “Keeping Spreadtrum within the confines of the Chinese government is important to Tsinghua.”
Spreadtrum, led by Chief Executive Officer Leo Li, reported 2012 revenue of $725 million and net income of $93.3 million, according to data compiled by Bloomberg. The stock had jumped 50 percent this year through yesterday. Tsinghua Unigroup and Tsinghua University’s intellectual property portfolio will give Spreadtrum greater IP protection, Li said in the statement.
The acquisition would be the largest in the industry since Micron Technology Inc. offered to buy Elpida Memory Inc. for $4.4 billion in July 2012. There have been $111 billion of deals in the industry announced in the past decade, including the $16.2 billion private-equity led buyout of Freescale Semiconductor Inc. in 2006.
Spreadtrum was targeted by short seller Muddy Waters LLC in June 2011 with accusations that the company’s accounting was erroneous. Spreadtrum denied any problems, and the shares have doubled since Muddy Waters’s report on the chipmaker.