Philips leaving the chip business

Royal Philips Electronics NV sold NT$57.7 billion (US$1.75 billion) of Taiwan Semiconductor Manufac-turing Co (TSMC, 台積電) shares at a 3.3 percent discount as part of its plan to sell its entire stake in the chipmaker.

Philips sold 887 million shares in the Hsinchu-based chipmaker for NT$65 each after the market closed in Taipei, cutting its stake to 12.8 percent from 16.2 percent, according to an e-mail from Philips and a statement issued by the Taiwan Stock Exchange.

Philips chief financial officer Pierre-Jean Sivignon said in a joint statement: "For Philips, selling our stake in TSMC is a logical consequence of our decision to exit the semiconductor business, to which end we made a first, significant step in 2006 when we sold a majority stake in our semiconductor division."

Philips, based in Amsterdam, said last Friday it plans to sell its US$8.5 billion stake in TSMC, the world's biggest supplier of made-to-order chips, by 2010.

The price for yesterday's transaction is a 3.3 percent discount to the stock's closing price of NT$67.20 on Taiwan Stock Exchange.

Philips sold the bulk of its semiconductor business to a consortium of US investment funds last year and said it would focus on more stable areas such as lighting and medical equipment.

Under the deal between the Dutch and Taiwanese companies, Philips is to sell a further stake in TSMC over the stock market for about US$2.5 billion and will also make its shares available to TSMC for share buy-back schemes.

Philips is also to abandon all positions on the board of TSMC, with its representative in the management of the company resigning last Friday, a statement said.

Lora Ho (何麗梅), TSMC vice president and chief financial officer, said her company is pleased to have come to a satisfactory solution to facilitate the Philips disposal of its TSMC shares.

"We intend to make good use of our cash while reiterating our commitment to maintain our current annual cash dividend," Ho said in the statement.

"Given that Philips is selling such a large stake, the small discount is quite reasonable," said Ernest Chiang who helps manage NT$400 million at Ta Chong Investment Trust Corp (大眾投信) in Taipei and doesn't own TSMC shares. "Anyone who bought the shares basically wants to have TSMC in their portfolio and will be investing for the long-term."

Cathay Financial Holding Co (國泰金控), Fubon Financial Holding Co (富邦金控) and Shin Kong Financial Holding Co (新光金控) said they are interested in buying TSMC shares from Philips, the Chinese-language Commercial Times said yesterday citing executives at each company.

Shin Kong did not buy any shares of TSMC yesterday, said spokesman Victor Hsu (許澎). Cathay spokesman Lee Chang-ken (李長庚), Fubon chief investment officer Daniel Chiang (蔣國樑) could not be reached for comment.

The purchasers intend to hold the shares as "long-term" investments, TSMC spokesman Tzeng Jinnhaw (曾晉皓) said yesterday in a telephone interview, declining to identify the buyers. Goldman Sachs Group Inc arranged the sale.

Philips expects a non-taxable first-quarter 2007 gain of 725 million euros (US$952 million) from yesterday's sale, according to the e-mailed statement.