MADISON, Wisc. -- Micron Technology’s planned takeover of Japan’s failed chip maker Elpida Memory has hit a snag.
A group of Elpida’s bondholders filed their own restructuring plan on Tuesday (Aug. 14) with the Tokyo District Court, countering the initial acquisition offer from Micron.
The bondholder group that includes a number of institutional investors offered to extend a 30 billion yen ($383 million) credit line to Elpida, while creating an opportunity for Elpida to solicit sponsor candidates to acquire part or all of the company
Unlike the United States, corporate bankruptcies in Japan are a relatively new phenomenon. The lack of experience among those dealing with Japan’s bankruptcy court procedures is likely to make Elpida’s future even more uncertain.
The group opposing to Micron’s acquisition plan of Elpida for 60 billion yen ($769 million) argues that the deal grossly undervalues Elpida’s assets. It said Elpida is worth no less than 300 billion yen ($3.85 billion).
Micron had agreed to acquire Elpida equity for 60 billion yen ($769 million) and pay creditors a total of 140 billion yen in annual installments until 2019.
While the DRAM market is growing at a rate of 3 percent, the market for mobile DRAM chips is projected to grow to a record $6.56 billion in 2012, up 10 percent from 2011, according to market researcher IHS iSuppli.
Elpida’s strength is in low-power DRAM technology for mobile applications. Analysts said Elpida’s strength in mobile DRAM was a key reason why Micron bid to acquire it. The proposed 200 billion yen deal between Micron and Elpida was reached late June.
The bondholders laid out following points arguing why the Micron-Elpida deal grossly undervalue Elpida. Gross undervaluation of Elpida 1. Micron has agreed to acquire a 24% stake in Rexchip for ¥26.1 billion in cash.That makes Elpida’s 65% holding of Rexchip worth more than ¥72 billion -- much more than what Micron offered for the whole of Elpida.
2. Elpida’s Hiroshima plant is a state-of-the-art facility with impressive production capacity. Anyone should not be allowed to buy this plant and its highly skilled work force for a fraction of its fair value.
3. Information filed by Micron with the SEC. shows that the Trustee will make its best efforts to ensure that Elpida will have at least ¥70 billion (US$897 million) of cash on its balance sheet after closing of the agreement with Micron. Micron shouldn't be allowed to receive this ¥70 billion in cash in addition to all Elpida’s other assets. This makes it look as though Elpida is paying Micron to purchase Elpida.
4. The IP assets of Elpida are also included in the sale to Micron. The current offer ascribes no value to Elpida’s world-class asset.
Who are these guys?
The bondholders group reportedly includes international financial institutions with operations in Japan.
According to the group, a number of bondholders have been investors in Elpida since before its bankruptcy. The group said that they do not seek to acquire Elpida for themselves alone, but they do wish to “ensure that Elpida realizes its full value to the benefit of the company itself, its employees, and its creditors and other stakeholders, including many Japanese individual and institutional investors.”
The restructuring procedure could take several months based on Japan’s corporate reorganization law. The bondholders said that they will ask the Tokyo District Court to certify their plan for a creditor vote that is expected in October 2012.
I think, generally speaking, many Japanese companies are undervalued these days. Usually, that means that it's time to invest.
But the problem is that nobody seems to have enough confidence that these Japanese companies -- including Elpida -- can get back to be profitable. And that may as well be true.