Several brokerages have a “buy” rating on Advanced Semiconductor Engineering Inc (ASE, 日月光半導體) shares after the world’s largest IC packaging and testing firm reached a deal to form a holding company with a smaller rival.
The brokerages are upbeat about ASE’s bottom line, as the deal is necessary for the local IC industry to consolidate in a bid to boost Taiwan’s competitive edge in a global market where competition has been on the rise.
On Thursday, ASE announced that it has reached an agreement to set up a holding company with Siliconware Precision Industries Co (SPIL, 矽品精密), the world’s third-largest IC packaging and testing firm.
Under the terms of the deal, each ASE common share will be swapped for 0.5 of a share in the new holding company, while each SPIL share is to be exchanged for NT$55 in cash.
After the stock swap with ASE and cash payout to SPIL’s shareholders, the new holding company is to own a 100 percent stake in both companies.
Under the holding company’s corporate umbrella, ASE and SPIL are to remain independent of each other and maintain their current operations, with their own structures, compensation systems and employee benefits unchanged.
ASE and SPIL said that the new holding company would list its shares on the main board of the TAIEX and on the New York Stock Exchange.
According to a market estimate, ASE is to hold about a 60 percent stake in the new company and to play a dominant role.
A Japan-based securities firm said that it had previously been worried about ASE’s system in package operations amid rising competition in the market, but the deal with SPIL has eased such worries since the combination is expected to create synergies for ASE.
The Japanese brokerage has raised its rating on ASE shares to “buy” from “underweight” and hiked the target price on the stock to NT$42 from NT$28.
Taiwanese regulations ban the names of foreign brokerages being reported when they give price forecasts for specific stocks.
On Friday, ASE shares closed up 10 percent — the maximum daily increase — to close at NT$36.35 on the Taiwan Stock Exchange.
ASE’s American depositary receipts rose 18 percent on the news of the deal on Thursday and rose an additional 0.17 percent on Friday.
A Hong Kong-based brokerage said that the future holding company is expected to maximize the efficiency of ASE’s use of research and development funds and raise ASE’s bargaining power in product price negotiations.
The Hong Kong brokerage has maintained a “buy” rating and a NT$40 target price on ASE shares.
ASE chairman Jason Chang (張虔生) said that he expects the holding firm to boost the combined share of ASE-SPIL in the global IC packaging and testing market to between 30 percent and 40 percent from its current 15 percent.
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