Temasek in bid to buy Stats for up to $2.85b

SINGAPORE investment firm Temasek Holdings has launched a bid, worth up to $2.85 billion, to take semiconductor associate Stats ChipPac private.

Temasek is offering to pay as much as $1.88 for every Stats share it does not own and will take on US$265 million (S$405 million) of Stats' outstanding borrowings if it is successful with the takeover.

The maximum offer price is at a 27 per cent premium over the counter's closing price of $1.48 on Wednesday, ahead of yesterday's offer announcement.

When the counter resumed trading yesterday, the share price shot up 33 cents to $1.81.

But analysts were not bowled over by the offer and said that the move could well be an effort to bump up gains from a future sale of the world's No. 4 chip testing and packaging company.

Temasek, which has a 35.6 per cent stake in Stats, is offering $1.75 cash for each share that it does not own. It will pay $1.88 if it ends up with at least 90 per cent of the chip company.

At that point, it would exercise its right to a compulsory acquisition of all remaining shares and delist Stats from Nasdaq and the Singapore Exchange.

According to offer documents presented by Temasek's financial adviser Goldman Sachs, the investment firm will also take over two tranches of Stats' convertible bonds due next year. The offer is conditional on Temasek getting at least 50 per cent of Stats.

Industry watchers said Stats shares could reach Temasek's offer price without the offer later this year, noting that its shares were sold at $3.56 apiece when they were first listed in 2000.

Then known as ST Assembly Test Services, the company has since become much larger after the US$1.6 billion acquisition of ChipPac three years ago.

'If you take a short-term view, the valuation is attractive, said Daiwa Institute of Research analyst Pranab Sarmah.

'But if you consider that Stats has turned around their business in 2006, becoming profitable after five years of losses, then maybe you might want to hold on to the shares to enjoy the growth in 2008.'

DBS Vickers analyst Don See said Temasek picked a good time to buy the shares as the industry is bottoming out and is poised for a recovery later this year.

Analysts were surprised at the offer as Temasek has indicated that it is trying to grow its investments outside of Singapore.

Also, Stats is generally not seen as strategic to Singapore's economy - seemingly the only non profit-maximising reason for Temasek to hold on to an investment. Some analysts thought the bid could be a way to attract higher offers for the firm.

Others suggested that Temasek could be trying to form a bigger company by merging Stats with another chip company that it will buy. This will allow Temasek to reap greater gains when it sells the enlarged entity.

The theory may have found some acceptance, as shares of United Test and Assembly Center and Chartered Semiconductor Manufacturing saw strong gains yesterday amid a general selldown in the local stock market.

Explaining its interest to raise its shareholding in Stats, Temasek said it has been a long- term shareholder and continues to believe in its prospects.

Stats said in a separate statement that it will be appointing an independent financial adviser to make recommendations on the offer.

bryanlee@sph.com.sg