Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Advanced Semiconductor has sealed a long-sought deal to combine with fellow Taiwan chip packager Siliconware Precision, presented by the companies variously as a merger, a "joint share exchange" and a "mutually beneficial platform." The blunt fact is it's a takeover.

The agreement announced Thursday creates a holding company that will buy out both ASE and SPIL, as the companies are better known. ASE shareholders will get shares in HoldCo, while SPIL investors will be paid cash. The bigger suitor will therefore control the combined company, which would have a combined market capitalization of almost $15 billion based on current values.

Joint Share Exchange?
One company will own shares in the newly created ASE-SPIL holding company
Source: Bloomberg

It's the result that ASE has been seeking for months, and which SPIL had been fighting against desperately. It was a messy battle, encompassing accusations and slurs, white knights and proxy fights.

Terms of the deal state that HoldCo will pay NT$55 ($1.69) per SPIL share. That's how much ASE offered in its second tender offer before failure to get Taiwan regulatory approval nixed the bid. Had that proposal been successful, ASE's stake would have risen to 49 percent, but SPIL resisted, talking up antitrust concerns as part of its defense.

Merger Without Equals
SPIL's shares have jumped at the prospect of being bought out
Source: Bloomberg

The structuring of the agreement has enabled SPIL Chairman Bough Lin to save face and offer his staff some degree of protection.

"ASE and SPIL will each maintain its separate legal entity status, retain its legal entity name, and maintain its current independent operations and operating model." -- Joint statement

SPIL failed to negotiate a better price for its shareholders, having insisted in its earlier rebuttal that NT$55 was far too low. It suggested a fair value of as much as NT$68.60.

While SPIL shareholders may be disappointed by the low-ball offer, they shouldn't be. Friday's 5.4 percent jump to NT$53.20 took the share price to 17.1-times estimated annual earnings, well above any multiple the stock has reached over the past two years. and rich compared with the 13.4-times ratio at which ASE now trades.

ASE investors will also be satisfied, after their shares jumped by the 10 percent daily limit on Friday. This may be no merger of "parallel sibling companies," to use the language of management, but both sides have something to celebrate.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net