UPDATE: Infineon Sends Team To Talks With Korea's Hynix
DOW JONES NEWSWIRES
(This updates a story that ran around 1111 GMT, adding analyst comment and background.)
By Chris Reiter
Of DOW JONES NEWSWIRES
BERLIN -- Talks over a possible partnership between German chip maker Infineon Technologies AG (IFX) and South Korean rival Hynix Semiconductor Inc. (Q.HYY) appear to be intensifying, with Infineon sending a team of negotiators to South Korea.
The team arrived shortly after the departure from South Korea of Infineon Chief Executive Ulrich Schumacher over the weekend, a source close to the situation said.
An Infineon spokesman Wednesday confirmed it has a team in South Korea, but he declined to comment on when it arrived or the state of the talks.
"We are continuing to negotiate with Hynix, but we can't comment on ongoing negotiations," he said. He wouldn't comment on when the talks would conclude.
The arrival of the team shortly after the companies' top executives met suggests talks between two of the world's largest memory-chip makers are reaching a critical phase.
The Korea Economic Daily newspaper reported Wednesday that Infineon will reveal the framework of its proposal on Friday.
According to the paper, Infineon will offer to swap shares and cash for a 20% stake in debt-laden Hynix, which is the world's third-largest maker of memory chips with a market share of 17%. Infineon is ranked as number four and enjoys a market share of 13%.
Hynix is also in talks with U.S. chip maker Micron Technology Inc. (MU), the world's second-largest memory-chip maker behind Korea's Samsung Corp. (Q.SSG), about selling some of its assets.
But Hynix and Micron have been at odds over the value of the assets, and the recent rise in chip prices has increased pressure on Micron to increase its offer, opening the door for Infineon.
Hynix has a market capitalization of about $1.9 billion and Micron has reportedly offered $3.8 billion for Hynix's entire memory operations and a minority stake in non-memory operations.
If Infineon intends to beat that, it have to offer more than $760 million for a 20% stake, which wouldn't give it management control of the troubled chip maker and would seriously dent Infineon's cash reserves.
If a deal between Infineon and Hynix does come to pass, it would be an about-face for the German chip maker and a difficult sell to its shareholders.
Infineon has repeatedly complained that the Korean government is unfairly supporting Hynix and has asked the German government to take action.
Infineon has also said it wants to reduce its reliance on the volatile memory-chip industry, which is suffering from the worst downturn in its history but has recently shown signs of recovery.
A deal to acquire a stake in Hynix would have limited strategic advantages, analysts said.
Hynix is struggling financially and was most recently bailed out in November. As part of that deal, three trillion won ($1=KRW1,317) of the company's KRW8.64 trillion debt would be swapped for equity by March. After the swap, creditors would own nearly half of Hynix.
This debt would also be an issue in any deal between the two companies. Infineon has been unwilling to stretch its finances and lost out on a deal with Japan's Toshiba Corp. (J.TOS) because it refused to cover costs associated with a joint venture between the two companies' memory chip operations.
Hynix and Infineon also use different technologies to make dynamic random access memory, or DRAM, chips, the standard product on the memory-chip market.
This difference would make it more difficult for the companies to integrate and would limit synergies and increase restructuring costs, analysts said.
Because of these reasons, analysts aren't viewing the prospects of a tie-up in a positive light.
"We wouldn't look upon a deal with Hynix so positively," said M.M. Warburg analyst Achim Fehrenbacher, who has a hold rating on Infineon.
A takeover of a minority stake in Hynix would probably be less welcomed by Hynix's creditors, who are more interested in getting their cash than being shareholders of a semiconductor company.
And if shares are used to pay part of the deal, it would put pressure on Infineon's share price, as the banks would likely look to sell the shares quickly, Fehrenbacher added.
-By Chris Reiter, Dow Jones Newswires; +49 30 288 8410; chris.reiter@dowjones.com
Updated February 6, 2002 9:48 a.m. EST
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