Hynix prefers cash injection from Micron

Dec. 6, 2001 – Seoul, South Korea – Hynix Semiconductor Inc. said it wants US chipmaker Micron Technology Inc. to inject cash into the company under a proposed alliance aimed at easing the global glut of computer memory chips.

Hynix, the world’s second largest memory chipmaker, said it would rather sell new shares to third-ranked Micron than accept an equity swap, according to Reuters.

A Hynix official declined to confirm a report in the Korea Economic Daily saying Hynix had in principle agreed to exchange a 15 to 20% stake held by its creditors for a certain amount of stock in Micron. A final deal was expected in the first half of next year, the report said.

The two companies began talks on this week, helping to boost chip shares around the world amid hopes that the discussions may spur restructuring in an industry blighted by overcapacity.

“In talks with Micron, we naturally want a cash injection from them,” a senior Hynix official told Reuters. “We need fresh money.”

The troubled Korean chipmaker owes 8.64 trillion won ($6.83 billion) to banks and other financial institutions.

“All possibilities are open and talks are in the early stages,” said the official, who asked not to be identified.

Micron and Hynix announced plans earlier this week to discuss a strategic alliance or other options, including a merger, which would forge the world’s top producer, replacing Samsung Electronics.

Any deal that cuts capacity should lift depressed chip prices, which have already begun to recover following news of the talks. Hynix and Samsung said they had increased contract chip prices by as much as 20% for big clients in December.

A Hynix official said Micron representatives would visit Hynix’s main plant in Ichon later this week to begin due diligence on the Korean company.

Analysts said a deal was unlikely to take shape any time soon as it needed agreement from several parties with conflicting views.

“Hynix’s creditors, who are heavily exposed to the company, also want to get out of it,” said a chip analyst at a local brokerage. “From Micron’s point of view, it has no reason to do good to its rivals at its cost.”

“I think both parties have very, very different ideas about negotiating,” Gartner Dataquest analyst Andrew Norwood said.

“Hynix thinks Micron is coming in as a white knight and is going to give it an injection of capital and let it continue with its DRAM business. Micron thinks they’re going in for the kill and they’re going to take out a competitor,” he said.

“I think when they sit down, they’ll very quickly realize they’re talking about very different things and that’s going to be a real problem.”

Hynix creditors, led by Korea Exchange Bank, extended a $7 billion bailout in late October in return for control over the Korean chipmaker.


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