Advanced Technology Investment Co., owned by the government of Abu Dhabi, agreed to buy Chartered Semiconductor Manufacturing for $2.5 billion in cash and plans to combine it with Globalfoundries Inc.
ATIC will pay $2.68 a share for Singapore-based Chartered Semiconductor, ATIC said in a Business Wire statement today. That compares with the closing price of $2.66 on Sept. 4, and is a 14% premium to the company’s 30 trading-day volume weighted average price.
Chartered Semiconductor will be combined with Globalfoundries, a venture ATIC created with Advanced Micro Devices Inc. last year. Chartered Semiconductor makes chips used in Microsoft Corp.’s Xbox 360 game console and raised US$300 million ($431 million) in April by selling shares to existing investors. The company has eliminated workers and cut overtime to reduce costs.
“This deal makes a lot of sense,” said Steven Pelayo, an analyst at HSBC Holdings Plc in Hong Kong who has rated Chartered Semiconductor’s stock “neutral” since March. “This presents a formidable threat to other players and really does start to change the competitive landscape much more quickly than I thought.”
Chartered Semiconductor, which was halted in Singapore trading today, has more than doubled this year.
Temasek Holdings, Singapore’s state investment firm and owner of about 62% of Chartered Semiconductor’s shares, supports the deal, according to the statement.
“This announcement puts an end to the long history of speculation regarding Temasek’s desire to exit its investment in Chartered,” Manjesh Verma, an analyst at Nomura Holdings Inc., wrote in a note. “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 Officer Doug Grose will become CEO of the combined operations, ATIC said. Chartered Semiconductor CEO Chia Song Hwee will be chief operating officer and will be in charge of the integration of the operations.
“By acquiring Chartered, ATIC is expanding its investments in the semiconductor industry which currently consist of a Globalfoundries leading facility in Dresden, Germany and a new, state-of-the-art facility under construction in upstate New York,” ATIC Chairman Waleed Al Mokarrab said in the statement.
“It gives Globalfoundries access to more capacity immediately and they can leverage Chartered’s existing customer relationships,” HSBC’s Pelayo said. “Had Globalfoundries not done this it would have taken another one to two years for them to ramp up their capacity and expand their customer base to prove they could be a threat. Now the threat starts today.”
The deal is valued at about $5.6 billion, including debt and convertible redeemable preference shares as of June 30, ATIC said. Chartered Semiconductor’s American depositary shares will be bought for about US$18.64, depending on the exchange rate and other costs. The shares closed at US$18.78 in the U.S. on Sept. 4.
“Chartered has been a company that’s struggled to make a profit and it’s had to spend a lot in capital expenditure,” Pelayo said. “Relative to valuation, this price is right around one time the shares’ book value. Given it’s a company that was losing money, that book value may have deteriorated over time if the company could not return to profitability.”
Chartered Semiconductor today also raised its third-quarter forecasts for revenue and earnings. Revenue will range from $405 million to $415 million, up from a forecast of $382 million to $394 million, according to a statement. The company now anticipates results to range from a net loss of S$8 million to breakeven, an improvement from a loss of $27 million to $17 million. Chartered Semiconductor has reported losses in the previous four quarters.
Morgan Stanley Asia (Singapore) Pte and Citigroup Global Markets Singapore Pte are advising Chartered Semiconductor in the transaction. Deutsche Bank AG’s Singapore branch has been appointed to advise shareholders on the fairness of the offer.