Local semiconductor firm GCS Holdings Inc (環宇通訊) yesterday said it has signed a letter of intent with Chinese LED giant Sanan Optoelectronics Co (三安光電) to discuss a merger worth US$226 million in the latest merger-and-acquisition deal across the Taiwan Strait.
GCS, a compound semiconductor foundry service provider, said its board has agreed to consider Sanan’s proposal to buy all GCS shares, including restricted shares for employees and corporate bonds, a company filing with the Taiwan Stock Exchange said.
The companies are scheduled to sign a formal agreement on March 31 after completing further detailed assessment, the filing said.
GCS has total capital shares of 58 million and issued unspecified corporate bonds and restricted shares.
Trading on the local over-the-counter bourse, GCS shares are likely to be delisted from the Taipei Exchange after the transaction is completed.
The deal would require approval from Taiwan’s Investment Commission and the US authorities because some GCS products with military purposes are shipped to clients there, local media reported yesterday.
The planned merger came after China’s Tsinghua Unigroup Ltd (清華紫光) demonstrated its ambition to build its own semiconductor supply chain by investing in global chip companies, including those from Taiwan.
Tsinghua Unigroup has inked agreements with three local chip testers and packagers — Siliconware Precision Industries Inc (SPIL, 矽品精密), ChipMOS Technologies Inc (南茂) and Powertech Technology Inc (力成科技) — to buy a 25 percent stake in each for a total of NT$88.1 billion (US$26.7 billion).
GCS, registered in the Cayman Islands, offers foundry services for gallium arsenide-based and gallium nitride-based radio frequency ICs, wireless devices, power electronics and optoelectronics in addition to gallium arsenide-based optical wafers and chips.
The company’s net profit soared 65 percent, from NT$167 million in 2014 to NT$276 million last year. That translated into earnings per share of NT$4.95, up from NT$3.32 a share a year earlier.
“Sanan is diversifying to new-generation semiconductor industry by using gallium arsenide, or other new materials [to replace silicon], as its core LED business is facing challenges of slow growth and persistent oversupply,” said Figo Wang (王飛), a senior analyst for LEDinside, which is a division of TrendForce Corp (集邦科技).
“It is convenient for the company to cut into the new business through mergers and acquisitions to shorten learning curve,” Wang said. “And Taiwanese companies are usually good targets, given their good technologies and relatively cheap cost.”
Wang said Sanan has invested substantial funds to enter the semiconductor industry in recent years. He estimated that more than 70 percent of the company’s revenue at about 5 billion yuan (US$768 million) came from its core LED business, while new semiconductor business only contributed 1 or 2 percent.
Sanan is no stranger to Taiwanese investors as the company holds about a 3 percent stake in the nation’s largest LED chipmaker, Epistar Corp (晶電), by swapping its holding of local LED chipmaker Formosa Epitaxy Inc (ForEpi, 璨圓光電) with Epistar shares in a merger in 2014.
Shares of GCS plummeted 5.37 percent to NT$97 yesterday, underperforming the TPEX’s 0.81 percent gain.
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