Siliconware Precision Industries Co’s (SPIL, 矽品精密) plans to partner with Hon Hai Precision Industry Co (鴻海精密) is expected to defend SPIL against as a hostile takeover bid from rival Advanced Semiconductor Engineering Inc (ASE, 日月光半導體), analysts said.
The two companies’ strategic alliance would expand SPIL’s presence in the fast-growing system-in-a-package (SiP) business, a potential threat to ASE’s touch controller SiP module and camera SiP module businesses, they said.
“We see this equity swap as a powerful move for SPIL as a way to defend its operation and cope with a potential hostile takeover bid,” Daiwa Capital Markets analyst Rick Hsu (徐稦成) said on Friday.
“Such a move could lead to integration failure between ASE and SPIL, discouraging ASE from any intention to cooperate, in our view,” Hsu said.
In addition, the equity swap deal between SPIL and Hon Hai is likely to expand both parties’ businesses through vertical integration, potentially creating a new global powerhouse to compete with ASE in a head-to-head battle, given its strong chip packaging, SiP and electronics assembling capabilities, Hsu said.
Hsu’s comments came after Hon Hai and SPIL announced on Friday that Hon Hai, which assembles Apple Inc products, would take a 21.2 percent stake in the world’s No. 3 chip packaging and testing service provider in exchange for 2.2 percent of its own new shares.
The offer came a week after ASE, the world’s biggest chip packager and tester, offered a tender to buy a 25 percent share in SPIL at NT$45 per share.
Hon Hai’s subsidiary ShunSin Technology Holdings Ltd (訊芯) makes SiP modules used primarily in mobile phones, such as Apple Inc’s iPhones.
“We are positive about any mutually beneficial opportunities that could sharpen SPIL’s competitive edge,” Hsu said.
Daiwa has an “out-perform” rating on SPIL with a 12-month target price of NT$41.5 per share.
Yuanta Securities and Investment Consulting Co (元大投顧) analyst Andrew Chen (陳治宇) also considers the SPIL-Hon Hai alliance as a quick way to tap into the growing SiP business for both companies, while it might have an incrementally negative impact on ASE, as the SPIL-Hon Hai alliance is set to become a potent competitor in the SiP manufacturing industry, Chen said in a report.
“We believe investors will see this as a positive event for SPIL,” Chen said.
Yuanta maintains a “buy” rating on SPIL and is retaining the stock’s 12-month target price of NT$43 per share.
However, Credit Suisse analyst Randy Abrams expressed a mixed view about the SPIL-Hon Hai alliance, although he believes the deal might have a long-term positive impact on SPIL in 2017 or 2018.
SPIL “can collaborate with Hon Hai on SiP projects without much capital spending,” Abrams said in a note to clients on Friday.
However, the deal would “dampen” the positive potential for the chip packaging and testing sector’s consolidation, he said. An alliance between ASE and SPIL would control a combined 30 percent market share in this industry.
Regarding ASE’s NT$45 per share tender offer for SPIL, Abrams said it is a good option for short-term holders of SPIL shares, considering the 10 percent dilution in the latter’s earnings per share.
If Hon Hai’s proposal is accepted in the fourth quarter of this year, the share-swap deal is expected to reduce SPIL’s earnings per share next year from NT$3.75 to NT$3.39, considering the issuance of 840 million new shares, he said.
SPIL is scheduled to hold an extraordinary shareholders’ meeting on Oct. 15, during which ASE is likely to vote against Hon Hai’s proposal.
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