Is STATS ChipPAC Ltd’s Latest Buyout Offer A Good Deal For Shareholders?

Since May this year, chip tester STATS ChipPAC Ltd. (SGX: S24) has been making headlines every now and then due to speculation that it might be acquired.

A history of talks

However, it seems that a buyout might really be in sight this time around. Jiangsu Changjiang Electronics Technology Co. (JCET), the largest chip tester in China, has tabled a S$1.01 billion bid to acquire Stats ChipPAC.

Interestingly, the deal does not include certain Taiwan-based businesses of Stats ChipPAC. Previously, other Chinese companies like Tianshui Huatian Technology Co. and Advanced Semiconductor Engineering (ASE) Inc had expressed interest in acquiring the Singapore-listed firm but as it turns out, it’s JCET which emerged at the front of the pack.

Since the start of the year, STATS ChipPAC’s shares had been steadily and slowly climbing and really took-off after news that the company might potentially be acquired first broke through in May. Shares of STATS ChipPAC eventually hit a closing-high of S$0.75 back in August.

But, with subsequent announcements that talks with some potential bidders had broken down, STATS ChipPAC’s shares then steadily declined to its current level of around S$0.46 per share.

The offer

The current non-binding offer from JCET indicates an offer price for STATS ChipPAC of S$0.452 per share and includes qualifying conditions such as having STATS ChipPAC successfully restructure its Taiwan-based business. The restructuring will involve carving out Stats ChipPAC’s stakes in two Taiwanese companies from itself. STATS ChipPAC currently holds a 52% interest in STATS ChipPAC Taiwan Semiconductor Corporation (SCTSC) and a 100% interest in STATS ChipPAC Taiwan Co., Ltd (SCT). If JCET’s purchase of the company goes through, current shareholders of STATS ChipPAC would continue to hold stakes in the two Taiwan-based companies.

Is it a good deal?

This deal might not be ideal for minority shareholders of STATS ChipPAC as they will end up with a small stake in the Taiwan-listed SCTSC while also having a private stake in SCT. However, with the business prospects of Stats ChipPAC seemingly getting dimmer each year due to the competitive nature of its business and the company’s lack of scale, it seems that there is little choice for minority shareholders.  In addition, STATS ChipPAC’s majority shareholder, Temasek Holdings, also seems to favour the deal and if that’s really the case, it seems there’s little minority shareholders can do.

With all the above, the current predicament of STATS ChipPAC’s minority shareholders could perhaps be described as a “damned if you do and damned if you don’t” situation. There’s some consolation though – Stats ChipPAC’s current share price is almost 40%higher than where it was at the beginning of the year.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.