By Jun Yang - Nov 10, 2011 5:43 PM GMT+0700
SK Telecom Co., South Korea’s biggest mobile-phone carrier, submitted a bid to buy 20 percent of Hynix Semiconductor Inc. (000660) amid a criminal investigation into whether the group’s founding family misused funds.
SK Telecom, the lone bidder, made its proposal before 5 p.m. today -- the deadline set by Hynix main shareholders, Irene Kim, a Seoul-based spokeswoman for the carrier, said by telephone. Hynix shareholders received one bid, said Lee Sun Hwan, a spokesman at Korea Exchange Bank. (004940)
A successful offer will give the carrier control of the world’s second-largest semiconductor maker and entry into the $39-billion-a-year market for computer-memory chips dominated by Suwon, South Korea-based Samsung Electronics Co. It’s the fourth attempt in two years by Hynix shareholders to unload the stake, which they gained through a 2001 government-led bailout. The bid comes as chip prices fell to a record low.
“I struggle to see any logical reason why there are synergies between SK Telecom and Hynix,” said Shaun Cochran, head of Korea research at CLSA. “It’s clear from the unusual timing and nature of this decision that it’s not being driven from shareholders’ perspective.”
Largest Sale
Seoul authorities searched the offices of some SK Group affiliates Nov. 8 while investigating whether funds were misappropriated. Chairman Chey Tae Won will prove his innocence, the group said in an e-mail response to Bloomberg News that day.
Yonhap News reported that prosecutors have been investigating Chey, 50, since May to determine if he used money from SK companies to reduce personal losses from futures investments. Yonhap reported Nov. 8 that Chey and his brother allegedly embezzled more than 100 billion won ($88 million).
The investigation of Chey comes less than four years after South Korea’s highest court reaffirmed a suspended, three-year prison term for fraud. Chey later was pardoned by the government.
Hynix fell 2.5 percent to 21,500 won, the lowest level in three weeks, in Seoul today on speculation the last likely bidder won’t proceed with an offer while entangled in a probe by prosecutors. SK Telecom declined 5.2 percent to 145,000 won, the biggest drop in more than two months.
Cheapest Prices
Hynix had a market capitalization of 12.7 trillion won based on today’s closing price. If the 20 percent stake shareholders want to sell fetches more than 2.6 trillion won, it would rank the share sale as the largest for a Korean technology company since 1999, according to data compiled by Bloomberg.
Interest in the semiconductor maker comes as the benchmark DDR3 2-gigabit DRAM fell to 75 cents, the lowest level on record, according to data compiled by Bloomberg.
Samsung, which earned 23 percent of its revenue last year from semiconductors, was the only manufacturer among the three biggest to post a profit last quarter from the business. Hynix had a net loss of 562.6 billion won in the third quarter.
SK Telecom’s interest in Hynix shows how South Korean business conglomerates known as chaebol are making investments that aren’t in the best interests of shareholders, Cochran said.
The bid makes sense for SK Telecom because it is trying to diversify as growth slows in the telecommunication business, said Kim Hong Sik, a Seoul-based analyst at NH Investment & Securities Co.
Deadline Extended
“For a meaningful reorganization of business, they probably need something as big as Hynix,” Kim said. “Hynix isn’t having massive losses like before, and they’re generating cash rather stably now.”
Supporters of chaebol credit them with pulling the country out of poverty after the 1950-1953 Korean War and transforming South Korea into Asia’s fourth-largest economy. Yet the International Monetary Fund cited the debt-driven chaebol model as one reason for the economic crisis at the end of 1997.
Fitch Ratings said in September that if SK Telecom buys the stake with debt, “the company’s credit strength may be impaired.” That echoed Standard & Poor’s July statement that the purchase would undermine the phone company’s credit rating.
The deadline for bids was extended twice since STX Group, which submitted a preliminary bid along with SK Telecom in July, pulled out in September. STX cited global economic uncertainties and concerns about investments needed to keep the chipmaker competitive as the reasons for the pullout.
$2 Billion Wealth
The shareholders, a group of financial institutions that spent $4.6 billion to bail out the chipmaker in the past decade, first tried to unload their shares in 2009.
Hyosung Corp. (004800), the sole bidder in a sale attempt in 2009, walked away from negotiations in November that year, saying speculation that it received political favors to pursue the takeover made it difficult to negotiate a fair acquisition.
Two subsequent attempts by creditors to sell their Hynix stake failed after no bidders emerged. In 2002, Micron Technology Inc. (MU) scrapped a $3 billion takeover offer after it was rejected by Hynix’s board.
SK Group, which started seven decades ago as a textiles maker, has grown into the nation’s third-largest chaebol with more than 80 units in the energy, financial services and telecommunications sectors. Chey’s wealth is estimated to be about $2 billion, making him South Korea’s seventh-richest man, according to Forbes magazine.
To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net
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