In a move that took analysts by surprise, Hon Hai Precision Industry Co (
Hon Hai announced that it would pay one of its shares for every 3.9 shares of Premier Image Technology Corp (普立爾), the company said in a statement submitted to the Taiwan Stock Exchange.
"After the merger of the two companies, we will be able to provide more diversified products for customers and create massive synergy by integrating resources," Hon Hai, headquartered in Tucheng (
The proposed acquisition -- worth around NT$30.3 billion (US$929.6 million) based on Hon Hai's closing price of NT$204 on Monday -- is the biggest electronics merger this year. In other words, Hon Hai would spend roughly NT$52.4 for each Premier share.
Premier currently has 5.8 billion in outstanding shares. The deal is scheduled to take effect on Dec. 1 this year, with Hon Hai to be the surviving entity.
"The price is quite reasonable as Hon Hai will pay about a 12 percent premium, which is quite low compared to the norm of 15 to 20 percent norm," said Lu Chia-lin (呂家霖), an analyst at Yuanta Core Pacific Securities Corp (元大京華證券).
Moreover, the acquisition is expected to expand Hon Hai's business in the consumer electronics sector and help sustain its revenue growth by diversifying the company's fortunes into the digital camera market, Lu said.
Hon Hai chairman Terry Gou (
"The Premier deal will also bring new orders for Hon Hai from top-notch Japanese optoelectronics brands such as Olympus and Pentax," Lu said.
Currently, Hon Hai makes PlayStation game consoles for Sony Corp and iPod digital music players for Apple Computer Inc, Lu said.
Over the past years, Hon Hai, which started as a computer connector maker, has been expanding its reach to new growth areas via mergers, like its rival Flextronics, Lu said.
Almost a year ago, Hon Hai bought a major stake in local handset maker Chi Mei Communication Systems Inc (
For Premier, which makes digital cameras for big brands including Japan's Sony Corp, the merger "will help expand their customer base and broaden their product portfolios," said company spokeswoman Lanie Ko (
Shares in Premier rallied almost to the 7-percent daily limit and closed at NT$47.1 yesterday on the Taiwan Stock Exchange in the wake of the announcement of the merger.
"The deal, which is a shock to me, will continue to boost Premier's share price in the next six months," said Helen Chen (
Standard & Poor's rating on Hon Hai will not be affected by the acquisition plan, the ratings agency said in a statement yesterday.
"Hon Hai's credit profile is unlikely to be affected, given the relatively insignificant size of this share-swap transaction and Premier's good operating margin and moderate leverage," the statement read.
Hon Hai shares tumbled 6.86 percent to NT$190 yesterday.
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