US$548 million in stock buys ChipPAC for ST Assembly
Aug 06, 2004
ST Assembly Test Services Ltd said it completed its acquisition of ChipPAC Inc for US$548 million in stock to form a company that will aim to be the world's third-largest provider of chip-testing and packaging services.
The combined firm, STATS ChipPAC Ltd, has factories in Malaysia, China, South Korea, Taiwan and Singapore, where it is based. Customers include Intel Corp and Analog Devices Inc. It forecast third-quarter profit of US$0.05 to US$0.09 per American depositary share (ADS), on sales of US$230 million to US$240 million, in a statement.
Demand, however, may not be strong enough for the combined company to use all of its expanded manufacturing capacity, anal-ysts said. "The timing may not be the best if we are going into another industry downturn," said Dharmo Soejanto, an analyst with Kim Eng Securities, who rates the shares "sell." "It means you have a bigger scale and more capacity to fill."
Merrill Lynch & Co last month cut its forecast for next year sales growth for the chip industry to 6 percent from 16 percent, saying excess manufacturing capacity may lead to price declines.
Shareholders of ChipPAC Inc, who earlier approved the transaction in a meeting, will get 0.87 ST Assembly ADS for each share of Fremont, California-based ChipPAC, ChipPAC said in a statement. The company expects cost savings of between US$25 million and US$30 million a year. ST Assembly said it paid 86.19 million ADS to those shareholders.
ST Assembly said it's making the acquisition to add more customers and manufacturing facilities and to combine Fremont, California-based ChipPAC's skills at packaging chips with its own testing business. "Scale and size, and a more competitive cost structure are the benefits of this merger," said ST Assembly chief executive Tan Lay Koon on a conference call with analysts. "We are going to leverage off our competitive cost structure and we'll enjoy higher margins with more advanced products, and we'll be more competitive with bigger volume."
Based on combined sales, STATS ChipPAC will rank behind Advanced Semiconductor Engineering Inc and ahead of Siliconware Precision Industries Co.