Elpida boosting Rexchip JV stake

Dec. 1, 2008 – Japan’s Elpida Memory is increasing its ownership stake in Rexchip Electronics, its memory JV with Taiwan’s Powerchip Semiconductor, from 48.8.% to 52%, in a bid to make the JV a consolidated subsidiary and take over leadership of investment and “adjust capacity allocation.”

“While Elpida has the utmost respect for PSC as a partner in the Rexchip joint venture it believes Rexchip can achieve faster business decision-making capabilities by becoming an Elpida subsidiary,” Elpida said in a statement.

The transaction amounts to 94.251 million shares, which currently carry a value of about $38.8M, notes Dow Jones, which adds that a clause will allow Elpida to increase its stake to 60% in the future.

Media reports had already indicated discussions between the two partners were heating up, with a possible merger on the table.

For Elpida, the deal gives the firm more control over not just its own memory capacity and spending decisions, but also more influence in the broader memory sector’s supply/demand balance equation. “The prolonged slump in DRAM market prices is currently helping to clarify which DRAM makers will remain as going business concerns. This situation is serving to place Elpida in a relatively more advantageous position in the industry,” the firm stated. Absorbing the Rexchip JV will help “achieve better supply-demand balances in the DRAM spot market and in the market for DRAMs supplied to major PC makers.”

The deal also bolsters Elpida’s assets by about ¥60B (US !$628.4M), notes the Nikkei daily, and strengthens the firm’s borrowing capacity. Elpida’s interest-bearing debt stands about ¥410B ($4.29B), of which two borrowings (¥80B/$837.9M and a more recent ¥110B/$1.15B) carry a condition of repayment if net assets in a given fiscal year drop more than 25%, the paper notes. Bringing on Rexchip’s ~¥60B ($628.4M) in assets likely avoids such a scenario in the near-term — Elpida’s assets of ¥347.8B ($3.64B) vs. a projected fiscal year net loss of >¥90B ($942.6M) would likely trigger that -25% clause.

For Powerchip, the deal offers some cash infusion. Dow Jones cited figures from Primasia Securities estimating Powerchip’s funding requirements of NT$40.07B ($1.20B) at the end of 3Q08, vs. cash/equivalents of just NT$22.26B ($667.2M).


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