MULTINATIONALS: Unigroup’s Micron Bid Dead — Really

Bottom line: The latest downbeat remarks from Unigroup’s chairman after a visit to the US indicate the company has given up on its bid to buy Micron, though it could potentially relaunch the effort after next year’s presidential elections.

Unigroup’s Micron bid looks dead

I wrote several weeks ago that a bid by China’s Unigroup to buy US memory chip giant Micron Technology (Nasdaq: MU) had become the victim of politics, and now it appears the deal is finally dead. Or at least it’s on life support, with little hope of resuscitation. That’s my interpretation, following the latest reports that say Unigroup’s chairman has given remarks that look quite pessimistic after returning to China from a last-ditch US visit to try to save the deal.

This deal looked quite interesting when it was first reported back in July, and would have been worth some $23 billion, marking the biggest-ever acquisition of a US company by a Chinese counterpart. But political sensitivities quickly surfaced due to Micron’s status as the biggest US maker of memory chips used in most electronic devices and also in the defense industry.

The situation was further complicated by timing, since the US is preparing for presidential elections next year and China is often an easy target for candidates to attack during that period. As the icing on the cake, Unigroup is also stigmatized by its close association with Tsinghu University, China’s leading science university that has close ties with Beijing and is often used for government-led programs to develop new technologies.

Perhaps the US media have already dismissed this particular deal, since the latest reports were only carried in Chinese and were based on information from a second-hand source familiar with Unigroup Chairman Zhao Weiguo’s recent US trip. Foreign media previously said that Unigroup officials were headed to the US to try to salvage a deal, though this is the first report on the outcome.

The latest report cites Zhao saying that ideally Unigroup can still close a deal to buy Micron. (Chinese article) But Zhao quickly adds that if such a deal doesn’t happen, perhaps the two companies can form a deep cooperative arrangement that will benefit both sides, forging a new kind of relationship between Chinese and US technology companies. The report adds that Zhao also met with several US legislators on the trip, though it wasn’t more specific.

Sagging Shares

Investors greeted initial reports of the deal with enthusiasm back in July, bidding up Micron’s stock after word emerged that Unigroup was considering an offer to buy the US chipmaker for $21 per share. But the stock has fallen from a high of more than $20 after the deal was announced to as low as $14.27, after a pair of prominent US politicians expressed national security concerns. (previous post) Shares have rallied slightly since then and now trade at more than $16, indicating the sell-off may have been overblown.

But anyone who was hoping for a deal to be salvaged will probably be disappointed. I’m no fortune teller, but Zhao’s remarks look decidedly downbeat and basically designed to prepare the market for disappointment if and when any formal announcement comes. Such a move would mark a big setback for Unigroup, which has signed major equity tie-ups with US tech giants Intel (Nasdaq: INTC) and Hewlett-Packard (NYSE: HPQ) over the last 2 years as it attempts to build an information technology (IT) giant that could someday compete globally with the likes of IBM (NYSE: IBM).

I was a initially a bit surprised by the political opposition to the deal, since Micron’s memory chips use technologies that are widely available worldwide. That led me to believe that election year politics may be more responsible for this setback, meaning the rhetoric could fade after next November’s presidential poll. If that’s the case, we could see Unigroup mount a new bid sometime in 2017, though I wouldn’t advise anyone to buy the stock now based on that expectation.

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