More than a few analysts think LG Semicon is stonewalling. They suspect the Korean chip maker has little intention of selling to Hyundai Electronics Industries, and is simply waiting for the global DRAM market to take off.
If that happens, the rationale for consolidating the two companies evaporates. Global oversupply disappears. Memory-chip prices climb-and profits return. And LG can tell the Korean government that the premise for merging the two DRAM makers no longer exists.
LG fab employees threw another monkey wrench into the LG-Hyundai situation. First they embarked on a work slowdown, then walked off the job completely at the Chungju DRAM plant-all in protest against Hyundai's refusal to give them seven-year guaranteed employment after the acquisition. Since LG itself made much the same demand for tenure for its employees, the labor disruptions at its fabs may not upset the company all that much.
The effect on sales will depend on how long the labor dispute lasts. But this can only result in firming the DRAM market even more. Any extended drop in LG production will further erode the already diminishing global DRAM oversupply, pushing prices up. LG might then find itself in a much stronger DRAM market when fab employees resume normal operations.
A wide gulf exists between LG's stock value, estimated at $1.8 billion to $2 billion, and its demands for an acquisition price that's a stiff premium above that amount. Hyundai, already saddled by its own estimated $6 billion in debt, can't afford to pay top dollar for LG, especially since it will also wind up with the LG chip operation's $4 billion in debts added to its own.
And it isn't clear that Hyundai is all that eager to take over its chip rival. In the shotgun marriage brokered by the Korean government, Hyundai must try to absorb LG's disparate DRAM designs and production lines without playing havoc with its own operations.
Analysts claim that LG needs extensive upgrading of its fabs to deep-UV-lithography sub-0.25-micron processes. Hyundai, meanwhile, is struggling to finance costly technology upgrades at its own fabs. It's doubtful that Hyundai could come up with yet more capital to convert any LG fabs it might acquire.
Even if the DRAM market does take off and LG convinces everyone the merger is no longer warranted, the company still faces a heavy need for capital to upgrade its fabs. But LG has been slicing down its debt, and might argue that it would be in better shape to finance the job alone than would a merged entity with far more oppressive debt.
Will the reluctant bride leave the suitor standing at the altar? Stay tuned to this long-running Korean DRAM soap opera.