Abu Dhabi deal challenges chip makers
September 8, 2009
By Jeran Wittenstein and Katrina Nicholas
Singapore - ABU DHABI has agreed to buy Singapore's state-controlled Chartered Semiconductor Manufacturing for S$2.5 billion (R13.3bn) as the emirate seeks to create the second-biggest maker of customised chips.
Advanced Technology Investment Company (Atic) would pay S$2.68 a share in cash, the investment firm owned by Abu Dhabi said in a statement yesterday.
The offer, backed by Chartered's largest shareholder, Singapore's Temasek Holdings, is less than 1 percent higher than the chip maker's Friday close.
A purchase would allow Abu Dhabi to combine its Globalfoundries venture with the maker of chips that run Xbox 360 game consoles, threatening United Microelectronics' rank as the second-largest contract manufacturer of semiconductors.
Temasek is ending a 22-year investment in unprofitable Chartered, which has eliminated workers and cut overtime to reduce costs.
"This deal makes a lot of sense," said Steven Pelayo, an analyst at HSBC Holdings in Hong Kong, who rates Chartered's stock as neutral. "This presents a formidable threat to other players and really does start to change the competitive landscape much more quickly."
Chartered was created in 1987 as a venture that included Singapore Technologies Engineering, another Temasek investment. It first sold shares to the public in 1999. Atic and Advanced Micro Devices created Globalfoundries last year.
"This announcement puts an end to the long history of speculation regarding Temasek's desire to exit its investment in Chartered," said Manjesh Verma, an analyst at Nomura Holdings. "From a credit perspective, Chartered will continue to benefit from a strong parent, given the support from the AA-rated Abu Dhabi government backing the company."
Globalfoundries chief executive Doug Grose will run the combined operations and Chartered chief executive Chia Song Hwee will be the chief operating officer.
Chia, who will be in charge of integrating the operations, does not expect many job cuts.
"This is not about putting two businesses together with a lot of overlap and trying to squeeze out costs. The vast majority of employees will not be affected. There's a lot for us to do so we are not expecting many redundancies," Chia said.
Chartered accounted for 11.3 percent of the global custom chip market, ranking third, according to research firm iSuppli.
Taiwan-based United Microelectronics, with 14.1 percent of the market in the first quarter, trailed Taiwan Semiconductor Manufacturing, which had 49 percent market share, according to iSuppli's June report. Globalfoundries was not ranked.
Pelayo said the deal "gives Globalfoundries access to more capacity immediately and they can leverage Chartered's existing customer relationships. (Without this) it would have taken another one to two years... to prove they could be a threat. Now the threat starts today." - Bloomberg
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