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Hynix-Micron agreement needs time

Hynix Semiconductor Inc's creditors said an agreement with Micron Technology Inc to buy the company's chip plants may take a long time, dampening investors' expectations an accord will be reached this week.

"Putting a valuation on the company and working out how that will be paid for is going to be difficult," said Kim Young-soo, chief credit officer of Hanvit Bank, one of the chipmaker's main lenders. "It will take a long time even if an initial non-binding agreement is signed."

Boise, Idaho-based Micron and Hynix have been talking since last month about combining their memory-chip businesses. Such a combination would overtake Samsung Electronics Co to make Micron the largest maker of dynamic random-access memory chips, the main memory in personal computers and other consumer electronics.

Hynix's shares surged 15 percent yesterday after a Yonhap news wire report said Micron submitted a proposal to the South Korean chipmaker that includes a merger of the companies' memory-chip businesses.

There is also concern that the longer the talks continue, the weaker Micron's position may become as the price of semiconductors continues to rebound.

The price of the industry standard 128-megabit 8x16 DRAM, was up 4.4 percent at US$3.23 yesterday, a rise of 37 percent since Jan. 1 and closer to the US$3.50 level that analysts estimate makers need to charge to make a profit.

Last year, the price fell as low as US$1.06, forcing all manufacturers to report losses in their most recent earnings period. The slump in memory-chip prices contributed to Hynix's need to find a buyer.

"It's not good for either side to drag the negotiations on," said Chung Chang-won, an analyst at Daewoo Securities Co in Seoul. "Micron had counted on getting its hands on Hynix at a cheap price and with DRAM prices on a rally, this may no longer be possible."

Last week, Hynix raised long-term contract prices of its memory chips by 30 percent, after two price increases of 20 percent each in December.

Negotiations may prove more complex than Micron's recent purchase of a memory-chip plant from Toshiba Corp. As well as coming up with an offer to satisfy Hynix, Micron must persuade creditors who are poised to become the chipmaker's largest shareholder and the government, which controls those creditors.

For its part, the government is intent on ensuring Hynix continues to provide 4 percent of Korea's exports.

The talks entered a new phase this week when Micron Chief Executive Officer Steven Appleton traveled to South Korea to oversee the discussions between the two companies.

Hanvit Bank and other lenders are looking to recover some of the 8.64 trillion won (US$6.6 billion) of money that the company owes. In October they signed off on the second multibillion dollar bailout package for Hynix last year, part of which included a debt for convertible bond swap which will make them the company's largest shareholder when the debt is converted.

"Creditors may have been tempted to sell it for near the liquidation value at the end of last year when semiconductor prices hit rock bottom," said Daewoo's Chung. "Now the tables are slowly turning."

In the process of agreeing on the most recent bailout, banks commissioned an outside study of Hynix which valued its debt as being worth about 25 percent of face value in the event the company had to be liquidated.

Hynix's ownership may become further complicated if it proceeds with a 1 trillion won new share sale that it promised creditors it would sell to raise cash to pay down debt.

Time may also not be on the side of the former Hyundai Electronics Industries. Estimates by UBS Warburg and other securities companies predict it will run short of cash again as early as the second quarter.

Hanvit's Kim declined to confirm a local newspaper report that said Micron, the second-largest maker of memory chips, offered to buy Hynix 's memory-chip business.

Micron offered to buy its rival's chip plants by swapping its shares for Hynix shares, the Korean Economic Daily paper said, citing comments made by Park Chong-sup, the Korean company's chief executive, at a meeting with creditors last night. An initial non-binding agreement will be signed within two weeks, the report said.

"A memorandum of understanding is going to take longer than this week," said Lee Youn-soo, chief credit corporate credit officer at main creditor Korea Exchange Bank, which led two multibillion dollar bailouts of the company last year. "Nothing has been decided on a valuation."

Micron spokesman Sean Mahoney declined to comment on the report. Kim Seung-soo, his counterpart at Hynix, also declined to comment. Creditor banks, are viewing the proposal "positively," the paper said, citing an unidentified official on the Hynix restructuring committee.

Online electronics trade publication EBN said Micron had offered between US$1.5 billion and US$2 billion for seven Hynix plants. The article did not cite its sources.
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