UMC cutting capital by 30%, giving back $1.75B to shareholders

January 25, 2007 – Taiwan foundry United Microelectronics Corp. (UMC) says it will cancel about 5.74 billion shares in order to reduce its capital by about $1.75 billion, and give back about $0.09/share to every one of its shareholders. The plan will reduce UMC’s outstanding capital to about $4.08 billion.

Going forward, the company expects to significantly increase cash flow due as its six 200mm fabs approach full depreciation, and future operations should be sufficient to meet R&D needs for advanced technologies and capacity expansions, including a second $5.0 billion 300mm fab in Taiwan’s Tainan Science Park, the company explained.

“In order to avoid future cash levels becoming excessive and to better respond to the expectations of today’s capital markets, the company has resolved to carry out this capital reduction and return cash to its investors,” UMC said in a statement. Reports quoted Liu Chi-tong, CFO of UMC, equating the payout to roughly 60% of UMC’s current cash stockpile.

Investors warmly embraced the move, which they claim is overdue, noted the Taiwan Economic News. The paper noted that Liu denied that the capital reduction is a prelude to delisting from the stock market, obtaining capital via private sources, or discussions with private equity funds for acquisition proposals.

The paper also noted that rival TSMC is rumored to be purchasing shares released by Philips in the form of treasury stocks, in order to also reduce its capital.

With better-managed cash flows, many Taiwan and Asia-Pacific semiconductor companies are likely to tweak and improve their capital management through capital reductions, buying back shares to write off, or higher cash dividends, noted Taipei-based Citigroup analyst Andrew Lu, cited in an Associated Press report.


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