Hynix Semiconductor Inc creditors may delay negotiations to sell the company to Micron Technology Inc, hoping a rebound in memory-chip prices will allow the Korean company to survive alone, investors said.
Since No. 2 chipmaker Micron and No. 3 rival Hynix announced Dec. 2 they were in talks, the spot price of the industry-standard 128 megabit dynamic random access memory chip surged 140 percent to US$3.52, the first time since last May that it was more than the estimated cost of production.
"Rising DRAM prices are working against Micron," said Kim Young-gil, who helps manage 3 trillion won (US$2.3 billion) in equities at Daehan Investment Trust Management Co in Seoul. "It would have to offer more for a possible takeover than when the talks initially began."
The low price of chips was key to bringing the two together.
For Micron, acquiring Hynix's facilities was a chance to lock up more than 40 percent of the market and control the fluctuations in demand and supply that led to wide price swings.
For Hynix, a sale to Micron was a chance to escape financial problems that forced it to seek two multibillion-dollar bailouts last year. Even with those rescues, some analysts forecast the company will run out of cash in the second quarter.
"Both parties need the deal to be completed reasonably soon," said Patrick Choo, who helps manage US$70 million in Asia, excluding Japan, at Kingsway Fund Management Ltd. "The more DRAM prices rise, the greater the chances of a higher selling price being demanded. On the other hand, the longer the negotiations drag on, the more Hynix will bleed.'' Hynix reported losses of 3.7 trillion won in the first nine months of last year. The company owes banks and other lenders 8.64 trillion won, more than twice its market capital, on which it must pay interest estimated at 200 billion won a quarter.
Rising chip prices may make Hynix's lenders feel they are in a stronger negotiating position. That may be a false sense of security, some investors said.
Chip prices, which usually fall in January as demand from personal computer makers declines, may have risen on the expectation that the two companies would combine and remove excess capacity.
``It's really difficult to say how much of the recovery in DRAM price was backed by expectations on the outcome of the talks and hopes of a rational supplier to the market in the event of a merger,'' said Mark Headley, president of Matthews International Capital Management, based in San Francisco, who manages US$200 million in Korean equities. "If the deal falls through, however, we're back to square one."
Last week creditors said negotiations between the two companies might take more time than the matter of days in which the local press speculated an agreement would be reached.
Steve Appleton, chief executive of Idaho-based Micron, the second-largest memory chipmaker, was in Korea last week for a third round of negotiations on a tie-up with No. 3 Hynix that would overtake Samsung Electronics Co. Creditors two weeks ago said they expected an agreement this month.
Hynix is being advised by Salomon Smith Barney Inc. and Goldman Sachs Group Inc is working for Micron.
"Neither side will win by dragging out negotiations," said Hong Sung-hoon, who manages 600 billion won in equities at Hanvit Investment Trust Management Co in Seoul.
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