SK Hynix is unlikely to acquire Toshiba’s memory business division alone. This is because Toshiba suggested that it would sell the entire unit for 25 trillion won (US$21.65 billion), though SK Hynix was planning to make an equity investment of 20 percent in Toshiba’s chip unit for some 3 trillion won (US$2.6 billion) earlier. With SK Hynix considering a joint and partial equity ownership acquisition and financial investor (FI) participation, the future of the group depends on the decision of Chairman Chey Tae-won, who has emphasized “Deep Change,” which means fundamental innovation.
According to semiconductor industry sources on March 6, SK Hynix recently received an information letter related to the memory business sale from Toshiba and is considering an acquisition of the unit. However, SK Hynix will not be able to post a solo bid as the total amount of the deal has increased from 3 trillion won (US$2.6 billion) to 10 trillion won (US$8.66 billion) and then to 25 trillion won (US$21.65 billion). Since SK Hynix will need about 25 trillion won (US$21.65 billion) of money for its 100 percent stake of Toshiba’s chip business, industry watchers say that the company is highly unlikely to take over the unit even with a joint investment with FIs. SK can currently raise about 4 trillion won (US$3.46 billion).
Toshiba now ranks No. 2 in the global NAND flash market with a 20 percent share after Samsung Electronics with a 36.6 percent market share. Whoever acquires the business, it will bring about an industrial upheaval. When SK Hynix, which ranks fourth with a 10 percent market share, succeeds in the takeover, the company can gain fast on Samsung Electronics right away with 30 percent shares.
In this regard, there is a lot of rumors in the market. In particular, the view that SK Hynix will form a consortium with Taiwan’s Hon Hai Precision Industry, a holding company of Foxconn which produces Apple’s iPhones, is gaining ground. Hon Hai Chairman Gou Tai-ming recently showed his intention to jointly take over Toshiba’s memory business.
Hon Hai had 13 trillion won (US$11.26 billion) of net cash as of the end of last year but the company doesn’t have enough money to cover the entire amount of 25 trillion won (US$21.65 billion) by itself. Above all, the greatest risk factor is that it doesn’t have any memory chip technology. This is why there are rumors that Hon Hai can join hands with SK Hynix which are on friendly terms with.
When SK Hynix acquires Toshiba’s chip unit, it will be the largest-ever acquisition which far surpasses Samsung Electronics’ acquisition of Harman worth 9.3 trillion won (US$8.05 billion) last year. To this end, Chairman Chey needs to make a bold decision.
An official from the industry said, “As we can analogize from the past in the DRAM market, the deal will be able to end chicken games in the NAND market. However, Chairman Chey is also considering “Winner’s Curse” which had not much synergy after Micron bought Elpida earlier.”
Even when SK Hynix is selected as the final preferred bidder in any form, the company also needs to receive approval from the Japanese government. At the moment when political risks with South Korea, including the comfort women issue, and anti-Korean sentiment run high, the company has a slim chance of getting approval.
Western Digital, the third largest player in the market, is in the worst situation. The company took over SanDisk last year and established a joint plant with Toshiba. It is also supplied with NAND chips from Toshiba to produce its solution products. The worst-case scenario for Western Digital would be Foxconn’s acquisition of Toshiba. Previously, Foxconn announced to stop supplying LCD panels to Samsung Electronics after purchasing Sharp last year. The same thing can happen in the semiconductor industry.
Meanwhile, Samsung Electronics didn’t’ participate in the bidding battle due to antitrust laws which prohibits a specific company from monopolizing the market. Toshiba plans to sell its stakes this month and complete the deal by the end of this year.