Spreadtrum (SPRD) Receives a $1.5 Billion Buyout Offer
A major company might be on the verge of being taken over by a Chinese university, in the latest round of market consolidation in the tech industry. State-owned Tsinghua Holdings, which is funded by Tsinghua University, recently offered to buy mobile-chip maker Spreadtrum Communications (SPRD) for $1.5 billion in the largest buyout offer of a semiconductor manufacturer this year. ADR shares of Spreadtrum surged 16% last Friday, its biggest rally since September 2009.
Tsinghua is offering 10.3 times EBITDA, a median offering in line with other comparable deals, according to data from Bloomberg. Daily Chart
Shanghai-based Spreadtrum is the world's 17th largest fabless semiconductor company by annual revenue, specializing in chips for mobile phones. Although Spreadtrum originally manufactured chips for GSM handsets (used globally), it is now primarily focused on the TD-SCDMA standard used in China. In addition to mobile handset chips, Spreadtrum also manufactures chips for the TD-MDMS and CMMB network standards used by mobile TV. Spreadtrum's customers currently account for roughly half of TD-SCDMA handset sales in the country. China is one of the world's fastest growing markets for handsets, and is a major market for Apple (AAPL
), Samsung, and other handset makers. However, the country also has a growing domestic handset industry, led by industry leader Huawei. Smaller players, such as the discount high-end Android phone manufacturer Xiaomi Tech, are also gaining ground. Prior to the takeover offer, shares of Spreadtrum had risen 15% over the past twelve months, but still remain relatively cheap with a forward P/E of 9.0 and a PEG ratio of 0.41. Several analysts approve of the takeover. Chardan Capital Markets analyst Jay Srivasta stated, "In terms of revenues and earnings, this company can go much higher than current levels." Beijing-based Tsinghua's chairman, Zhao Weiguo, stated that acquiring Spreadtrum would be an excellent fit with its "overall commercial objectives." Spreadtrum was previously targeted by short seller Muddy Waters in June 2011, which claimed that the company had accounting problems. Muddy Waters had very little impact on Spreadtrum. Shares have nearly doubled since the allegations, which Spreadtrum claimed were groundless. Other companies were not as fortunate. Focus Media, which Muddy Waters also targeted for accounting irregularities, was eventually delisted. Sino-Forest Corp., which was heavily shorted by U.S. sellers, plummeted 74% before filing for bankruptcy. The move to acquire Spreadtrum is part of a long series of market consolidating acquisitions that started in 2010. Since then, 23 U.S.-listed Chinese companies have been acquired, out of 43 announced acquisitions. $111 billion in deals have been made in the chip-making industry over the past decade. If Tsinghua acquires Spreadtrum, it would be the industry's largest acquisition since Micron Technology's $4.4 billion purchase of Elpida Memory last July. Investors should watch this market carefully for any possible future acquisitions. Other News About SPRD Why Spreadtrum Communications Shares Soared
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Published on Jun 27, 2013
By Leo Sun