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 Spreadtrum gets an unsolicited buyout offer. Spreadtrum Receives $1.3B Buyout Offer Will the company get a higher bid? Other Stocks in the News I Still "Like The Way" This Retailer Looks Men's Wearhouse fires its iconic founder. Nokia Continues to Rise From the Ashes Nokia's market share continues to grow, defying expectations. Copyright 2013 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Jun 27, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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