Spreadtrum to be acquired by Chinese state owned Tsinghua

September 2013 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

Spreadtrum Communications Inc, a Chinese mobile phone chip designer, has agreed to be acquired by an operating subsidiary of the Chinese state owned Tsinghua Holdings Co Ltd for a sweetened offer of around $1.78bn.

On 12 July, Tsinghua Unigroup Ltd announced jointly with Spreadtrum – the world’s 17th largest chipmaker – that it will acquire all of Spreadtrum’s outstanding shares for $31 per American Depositary Share (ADS). Spreadtrum currently has about 48.5 million outstanding shares. The latest, accepted offer is 9 percent above Tsinghua’s previous unsuccessful and unsolicited proposal of $28.50 per ADS, or $1.38bn. The original bid was lodged in June. In trading immediately after acceptance of the revised offer, Spreadtrum’s ADS price rose to a 52 week high of $26.69. Once completed, the acquisition will be the largest in the industry since Micron Technology Inc offered to purchase Elpida Memory Inc for $4.4bn in July 2012.

Spreadtrum is a fablesssemiconductor company which produces chipset platforms for smartphones, feature phones and other consumer electronics. The company’s chips support 2G, 3G and 4G wireless communications standards. Spreadtrum’s customer base includes global and China based manufacturers developing cheaper mobile products for consumers in China and other emerging markets. Samsung Electronics and HTC Corp are also among the company’s customers. Spreadtrum has supplier agreements with China Mobile Ltd, the world’s largest wireless company, European telecoms company Orange, and social media giant Facebook Inc. Based in Shanghai, the firm was founded in April 2001. The company has research and development centres in Shanghai, Beijing and Tianjin in China, and San Diego in the US. Spreadtrum also has a technical support centre in Shenzhen, and international field support offices in Korea, Taiwan and India. The company employs around 1500 people across its various locations.

Tsinghua Unigroup is a solely state owned limited liability corporation funded by Tsinghua University. The company’s usual business lines include high technology, biotechnology, science-park development, and urban infrastructure construction. Tsinghua will provide Spreadtrum with expertise in consumer products, as well as the protection and support of a vast IP portfolio. Spreadtrum will also benefit from Tsinghua’s access to capital markets in China.

Spreadtrum generated annual revenues of around $725m in 2012, up 7.6 percent year on year. However, the company’s net income fell by 30.5 percent to $93.3m in the same period. Spreadtrum ended its most recent quarter with $168.4m in cash, equivalents, and short term investments. The company currently operates with a total debt of around $94.1m. The revised bid for Spreadtrum is equivalent to 11.1 times EBITDA.

In a joint statement announcing the deal, Zhao Weiguo, chairman and chief executive officer of Tsinghua Unigroup, said “We believe Spreadtrum and Tsinghua Unigroup will supplement each other and create enormous synergies in China and abroad. Spreadtrum’s capable and talented management team will be encouraged to continue their strong performance and innovative corporate culture, while Tsinghua Unigroup is in the unique position to offer unique expertise in consumer products, protection and support from a vast IP portfolio, and unique access to important capital markets in China.”

The accepted offer represents a premium of 17 percent on Spreadtrum’s closing price on the NASDAQ on Thursday 11 July. The board of directors of both companies unanimously approved the proposed merger and recommended that Spreadtrum’s shareholders also approve the deal at a special meeting arranged to discuss the offer. The companies have not indicated an expected completion date; the transaction is still subject to antitrust and other regulatory approvals.

Richard Summerfield