Bottom line: Tsinghua Unigroup could end up scrapping its plans to bid for Micron due to fears of political resistance, while a new mobile OS that it’s backing is probably getting support from Beijing but is likely to fail.
The recently acquisitive Tsinghua Unigroup is in a couple of headlines today, as the politically-connected company chases its dream of becoming China’s first IT products and services giant. The first headline has the company investing $100 million in a company developing a mobile operating system (OS) that could someday rival Google’s (Nasdaq: GOOG) Android and Apple’s (Nasdaq: AAPL) iOS. The second hints at the political resistance that Unigroup could meet as it reportedly gets set to make a $23 billion bid for leading US memory chip maker Micron (Nasdaq: MU), with reports that a powerful senator has concerns about the deal.
Let’s start with the Micron deal, as that’s easily the bigger of the 2 stories and one that’s likely to stay in the headlines for the next few months due to its size and political sensitivities. Media first reported earlier this week that Unigroup, which was little known until it began its series of acquisitions about a year ago, was preparing to mount a bid for Micron for $21 per share, valuing the company at $23 billion. (previous post)
The initial reports prompted speculation that such a deal might meet with political headwinds over national security issues due to the high-tech nature of memory chips, which power many of the world’s gadgets. Now in the first sign of such resistance, media are reporting that the well respected and outspoken US Senator John McCain has raised concerns about such a bid and is calling for a thorough review. (English article)
It’s worth noting that McCain made his comments in response to a reporter’s question rather than in a high-profile setting, and that he didn’t say he opposes such a purchase. Some analysts have argued that Micron’s products are produced by a number of other major companies like Korea’s Samsung (Seoul: 005930), and thus the technology is widely available worldwide.
It’s also worth noting that Unigroup, which has formed other major tie-ups over the last year with Intel (Nasdaq: INTC) and Hewlett-Packard (NYSE: HPQ), hasn’t even submitted a formal bid yet. Reflecting that fact, Micron’s shares shed nearly 4 percent in the latest trading session after initially spiking on the early reports of an offer. At their latest close they now trade at $18.89, which is well below the reported $21 buyout price. That shows investors may believe Unigroup could get cold feet due to all the attention and abandon its plans for a bid.
$100 Mln Benefactor for Android Challenger
Meantime, the other report says Unigroup has invested $100 million in a smartphone start-up called Acadine Technologies, which is developing an OS that could one day challenge Google’s Android. (English article; Chinese article) The investment is the first major outside funding for Acadine, and will give Unigroup an unspecified non-controlling stake in the company.
Unigroup said in a statement the investment will help Acadine enter the “highly monopolized” sector for mobile OSs, a thinly veiled reference to the current dominance of Apple and especially Android in the space. The $100 million investment would normally look quite large, but it seems rather small these days for a company like Unigroup that has recently spent billions of dollars on acquisitions.
It’s becoming quite clear that Beijing is a major Unigroup backer, most likely through the company’s close connections with Tsinghua, China’s leading sciences university. Beijing has complained for years about the dominance of Microsoft’s (Nasdaq: MSFT) Windows OS in PCs, and more recently about Android’s similar dominance in smartphones.
The Chinese government has backed several efforts to break that dominance, both by domestic and international groups like Firefox and Ubuntu Kylin, but none has gained much traction. (previous post) I’m far from convinced that Unigroup, working with Acadine, will be the company to break that stranglehold. More likely, I expect that this particular investment will probably fizzle and die a quiet death like similar ones before it.