China Likely to Approve the Deal
SK Hynix has yet to obtain approval from China and Singapore to acquire the NAND flash business from Intel. The company is on alert as China has refused to endorse a couple of M&A deals in the global semiconductor industry.
SK Hynix has received approval from six of the eight countries that reviewed its acquisition plan. The United Kingdom gave the nod to SK’s deal unconditionally on June 28, following the United States, the European Union, Korea, Taiwan and Brazil.
As China is the largest semiconductor market, all companies have no choice but to obtain approval from Chinese authorities. Yet, China has recently frustrated a couple of big M&A deals by postponing its decision for no clear reasons.
A case in point is Applied Materials’ failure to acquire Japanese semiconductor company Kokusai Electric in March 2021. Applied Materials is the world's largest semiconductor equipment company. While the Chinese government's review was delayed for more than nine months, the acquisition price of Kokusai Electric rose from US$2.2 billion to US$3 billion due to a rise in the company’s stock price. As a result, AMAT had to give up its acquisition plan and pay 175 billion won in penalties to Kokusai Electric.
Experts say that China’s delayed review also caused Qualcomm’s failure to take over NXP. Qualcomm canceled the acquisition of NXP in July 2018 as the Chinese government delayed the review process. The contract was worth US$44 billion. Qualcomm reportedly paid US$2 billion in penalty to NXP.
However, industry insiders believe the Chinese government will give approval to SK Hynix’s acquisition of the NAND flash business from Intel.
It is difficult to reject the deal it is unlikely to lead to a monopoly. Even if SK Hynix and Intel simply combine their shares in the NAND flash market, the gap with Samsung Electronics, the current No. 1 player, will still remain significant.