Micron Acquires Elpida Memory In Reorganization Bid
July 3, 2012

Micron Acquires Elpida Memory In Reorganization Bid

Enid Burns for redOrbit.com — Your Universe Online

Semiconductor manufacturer Micron Technology agreed to acquire Japanese chipmaker Elpida Memory in what Micron is calling a sponsor agreement. The deal is valued at roughly $2.5 billion in total consideration, which includes $750 million paid in cash at closing. Elpida will become a Micron subsidiary.

The acquisition happens in conjunction with Elpida's corporate reorganization proceedings, which are being conducted under the jurisdiction of the Tokyo District Court. The deal saves Elpida, a chip manufacturer that owes its creditors $1.75 billion in future annual installment payments through 2019. Micron agreed to roughly $250 billion in total consideration, less certain reorganization proceeding expenses, which will be used to satisfy the reorganization claims of Elpida's secured and unsecured creditors. As part of the deal, Micron will acquire 100 percent of the equity of Elpida for $750 million in cash at closing. Debt will be paid from cash flow generated from Micron's payment for foundry services provided by Elpida.

The deal was initially discussed in May, when Micron won exclusive rights to acquire Elpida Memory. At the time it was estimated that Micron would shell out as much as $3.75 billion for the Japanese chip maker.

After the deal was announced, Reuters reported that Micron shares rose more than 5 percent. Absorbing Elpida will give Micron access to chip manufacturing assets at much lower prices than it currently gets. It will also boost the company's cash flow. The acquisition doubles Micron's shares in the market for DRAM (dynamic random-access memory) chips used in personal computers, smartphones, tablets and other devices. Elpida manufactures chips for smartphones, tablets and computers for Apple, among other customers.

Micron is building to produce a range of memory formats. "We are creating the industry-leading pure-play memory company," said Micron CEO Mark Durcan, in a corporate statement. "Today's transactions will help strengthen the combined companies' market position in the memory industry through increased research and development and manufacturing scale; improved access to core memory market segments; and additional wafer capacity to balance among DRAM, NAND and NOR memory solutions for the ultimate benefit of Micron and Elpida customers."

Where the Japanese company had trouble staying afloat, the newly acquired assets will make Micron stronger.

"Micron's sponsorship of Elpida will enable stable payment of creditor claims and help streamline approval of the reorganization plan by the creditors and the Tokyo District Court. Joining with Micron also delivers a clear advantage for Elpida's customers, suppliers and employees," said Yukio Sakamoto, co-trustee of Elpida. The transaction is a strong testament to the value of Elpida's technologies, products and people, and it will result in a combined organization that can best serve customers with broader memory solutions, strength and scale.

Micron is already looking beyond its current acquisition in its efforts to strengthen its memory chip manufacturing. In a separate agreement, Micron also reached a deal with Taiwan-based Powerchip Technology Corporation's 24 percent share of Rexchip Electronics corporation for approximately $334 million.

The new interests give U.S.-based Micron a competitive edge that could even the playing field with chip makers in Japan, Korea and Taiwan.