UMC may get stake in He Jian to placate prosecutors

United Microelectronics Corp (UMC) may get a 15 percent stake in the Chinese chipmaker He Jian Technology (Suzhou) Co in exchange for its technological assistance, top executives said yesterday.

The world's No.2 contract chipmaker hopes the announcement would settle prosecutors' month-old probe into alleged illegal ties with He Jian, UMC chairman Robert Tsao (曹興誠) said in a half-page ad in Chinese-language newspapers.

"We feel a need for He Jian to fulfill its previous verbal promise to repay UMC's assistance, following the investigation," Tsao said.

To meet its obligations, He Jian proposed giving a stake worth US$110 million to UMC as payment, Tsao said. He Jian now has 700 million shares outstanding, at US$1.1 per share, according to Tsao.

"It's reasonable to get 15 percent for our assistance and possible future technological cooperation, based on the company's acquisition of three companies, including Novatek Microelectronics Corp," UMC spokesman Liu Chi-tung (劉啟東) told a press conference.

UMC would take further steps to pursue a merger with the Chinese semiconductor start-up if the Taiwanese government okays He Jian's proposal.

UMC did not transfer technologies to He Jian, but only provided consulting services on technological development, Liu said.

The possible acquisition boosted UMC shares 0.5 percent, to NT$19, on the benchmark Taiwan Stock Exchange yesterday.

"UMC shareholders certainly will benefit from He Jian's offer. With He Jian's help, UMC will gain the upper hand in the world's fastest-growing chip industry," said George Wu (吳裕良), a portfolio manager who helps manage the equivalent of a US$31 million fund for Invesco Taiwan Ltd in Taipei.

UMC would catch up, or even overtake, bigger rival Taiwan Semiconductor Manufacturing Co (TSMC) in producing chips using more advanced processing technologies, Wu said.

TSMC is the only local chipmaker that has been allowed to make chips in China, using less-advanced 0.25-micron processing technologies. The Taiwanese government only allows local chipmakers to have three plants in China by the end of this year.

Prosecutor's responded to UMC's statement yesterday.

"We feel UMC's goodwill about compensating its shareholders. We will respond appropriately to that," said Tsai Ten-yuan (蔡添源), a prosecutor in charge of the case at the Hsinchu Prosecutor's Office.

But UMC's announcement was not sufficient reason to lift a travel ban on some 20 He Jian workers under investigation, including He Jian's chief executive, Shyu Jiann-hwa (徐建華), as Tsao requested, Tsai said.

Prosecutors will summon Tsao and vice chairman John Hsuan (宣明智) to court to clarify whether UMC has illegally invested in or transferred technologies to the Suzhou-based chipmaker.

Prosecutors have questioned 12 UMC engineers over the past week after launching a series of searches at UMC offices last month, Tsai said.

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UMC needs approval for share deal