Wall St. praises Micron buy of TI's memory business
By Therese Poletti
SAN FRANCISCO, June 18 (Reuters) - Micron Technology Inc.'s $800 million deal to buy the money-losing memory chip business of Texas Instruments Inc., amid tough times in the semiconductor industry, was praised on Wall Street as a savvy deal for both companies.
In a transaction announced after the market closed on Thursday, Micron will buy TI's memory business in a combination of common stock and assumption of debt, totalling approximately $800 million, based on Micron's current stock market price.
As a result, Dallas-based TI becomes the largest shareholder in Micron, initially with a 12 percent stake.
The transaction includes the purchase of all of TI's memory assets, as well as TI's shares in its two memory chip manufacturing joint ventures.
In addition to TI's memory assets, Micron will receive $750 million in financing from TI to help move Micron's technology into TI's memory business.
The deal will leave Boise, Idaho-based Micron and International Business Machines Corp. as the two remaining dynamic random access memory (DRAM) chip makers in the United States. DRAMs are the main memory component of personal computers. "We have a very good agreement that is a win-win for both companies," said Steve Appleton, chairman and CEO of Micron in a conference call with reporters.
Analysts on Wall Street agreed. Drew Peck, a Cowen & Co. analyst, called the deal "an accounting masterpiece."
Dan Niles, a BancAmerica Robertson Stephens analyst, called it a "perfect deal" for both companies.
"TI gets to blow out their DRAM business for a nice equity stake in Micron," Niles said. "Micron gets $750 million in financing...TI is taking their DRAM business, which they are horrible at, and (selling) it to someone who is great at it, plus they retain an interest in it."
The impending sale of TI's memory chip business has been rumored for weeks. TI, along with Micron and other Asian memory chip makers, have been hit hard by overcapacity in the market, which has fueled constant price cuts.
Niles estimates that TI's DRAM revenues will show a 30 percent sequential drop in its second quarter, versus first quarter revenues of $220 million.
TI's memory business recorded $375 million in revenues in the first quarter of 1997.
"You can see the dramatic decline that has occurred in TI's memory business as a result of the severe pricing decline," said Bill Aylesworth, chief financial officer of TI.
Texas Instruments has de-emphasized its volatile, commodity memory chip business in recent years and has focused on digital signal processors for communications devices. It also announced on Thursday it would take a second-quarter charge of about $270 million for a global restructuring program aimed at cutting about 3,500 jobs.
Micron and TI have also agreed upon a 10-year royalty free semiconductor patent cross-licensing pact, to begin Jan. 1, 1999. TI will retain ownership of all its related patents.
Under the terms of the agreement, upon closing TI will receive approximately 28.9 million shares of Micron common stock, $740 million principal amount of seven-year, 6.5 percent notes convertible into an additional 12 million shares of Micron common stock and a $210 million principal amount, seven year, 6.5 percent subordinated note.
When these convertible notes are converted into stock, TI will own between 16 and 17 percent of Micron.
Micron also will assume about $190 million of government-sponsored debt associated with TI's Italian memory operations.
TI currently operates three wholly-owned manufacturing facilities that are included in the transaction: a wafer fabrication facility in Avezzano, Italy, another wafer fab in Richardson, Texas, and an assembly/test facility in Singapore.
Also included in the transaction is TI's interest in two joint ventures. TI currently owns an approximate 25 percent interest in each joint venture and has rights to 100 percent of the production of each joint venture. Micron expects to offer positions to most of the TI memory employees.
At the same time, Micron released its fiscal third quarter results, saying it lost $106 million, or 50 cents a diluted share, on sales of $610 million, versus a profit of $97 million, or 45 cents a diluted share, on net sales of $965 million in the year-earlier period.
According to First Call, which tracks Wall Street estimates, analysts had been forecasting a loss of 46 cents a share for Micron's third quarter.
20:49 06-18-98 |
