LED chip suppliers Epistar Corp (晶元光電) and Formosa Epitaxy Inc (ForEpi, 璨圓光電) yesterday said the two companies plan to merge through a share-swap later this year to enhance their operating efficiency and competitiveness in the global market.
Epistar, the nation’s biggest LED chipmaker, said it plans to issue more than 170 million common shares to exchange for 586.16 million ForEpi shares based on a share-swap ratio of 3.448.
The share swap is to take effect on Dec. 30, the companies said.
Once the transaction is completed, ForEpi will become a wholly owned subsidiary of Epistar, with the merged entity holding more than NT$11 billion (US$368 million) in paid-in capital, as well as 6,700 employees.
The two companies said in a filing with the Taiwan Stock Exchange that the merger would integrate Epistar and ForEpi’s resources, expand the companies’ business scale and lower their management costs.
Based on Epistar’s closing share price of NT$74 yesterday and ForEpi’s NT$18.25, Epistar is offering a premium of 17.6 percent for ForEpi shares.
“The share swap will benefit shareholders of both companies. The deal is expected to have a positive impact on the two companies’ net value and earnings per share,” Epistar and ForEpi said in their filings.
The deal is still subject to approval by the two companies’ shareholders at their respective meetings on Sept. 1.
It is not certain if Epistar will consider delisting ForEpi from the local bourse, as messages left for the company were not answered yesterday.
Market researcher TrendForce Corp (集邦科技) said Epistar has 385 metal organic chemical vapor deposition (MOCVD) machines that are used to manufacture LED chips.
Together with ForEpi’s 103 MOCVD units, Epistar will have nearly 500 of the machines by the end of the year, higher than the 160 units owned by major Chinese rival Sanan Optoelectronics Co (三安光電).
“This merger will position Epistar well ahead of its competitors,” TrendForce analyst Joanne Wu (吳盈潔) said in an e-mailed statement.
Epistar ranks as the world's largest aluminum-gallium-indium-phosphide (AlGalnP) epitaxial wafer and chip supplier and the second-largest indium-gallium-nitride (InGaN) epitaxial wafer and chip maker.
Following the merger, Epistar will become the biggest vendor of both LED products and will have a 30-40 percent share of the global LED epitaxial wafer and chip market.
Other analysts said the deal would likely trigger a wave of consolidation in the LED industry, with major suppliers eyeing more production capacity to meet rising demand for LED lighting and LED backlight products.
“With a much larger capacity, Epistar can gain more competitiveness in winning new orders from clients, most likely international brands such as Koninklijke Philips NV and Osram GmbH,” Primasia Securities Co (犇亞證券) analyst Filia Lin said by telephone.
“It is very important for chipmakers like Epistar to expand capacity and increase the number of patents it has to win orders from large-sized lighting companies, which now more than ever are outsourcing orders to reduce costs,” she added.
But Lin said the merger is unlikely to help lift Epistar’s profitability until next year because of the transaction’s timing. She said Epistar is still expected to report weaker financial results for this and next quarters.
In the first quarter of the year, Epistar posted a net loss of NT$841.7 million, or a net loss per share of NT$0.91, with revenue of NT$6.24 billion.
Additional reporting by CNA
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