Bottom line: Tsinghua Unigroup’s bid for Micron could move it towards a goal of becoming China’s first world-class IT products and services provider, though it could face potential rival bids and objections from Washington.
After puttering around with a few high-profile deals in $1 billion neighborhood, Tsinghua Unigroup has suddenly turned up the volume in its drive to assemble a Chinese IT giant with a massive $23 billion bid for US memory giant Micron (Nasdaq: MU). I’ll be the first to admit I didn’t see this particular deal coming, and I have some doubts about whether it will actually close due to its large size and also potential political sensitivities.
But Unigroup, which has already formed telecoms technology deals with US tech giants Intel (Nasdaq: INTC) and Hewlett-Packard (NYSE: HPQ), has certainly shown it’s serious about try to assemble a major IT products and services provider. China is currently one of the world’s top consumers of such products, which power most of the world’s electronics and internal company networks. But despite that position, the country has yet to produce a company that can compete with such global giants as Qualcomm (Nasdaq: QCOM) in the chip space, and IBM (NYSE: IBM) in IT services.
According to the latest reports, Unigroup has bid $21 per share for Micron, the leading US maker of memory chips, valuing the company at about $23 billion. (English article; Chinese article) The offer marks a 19 percent premium over Micron’s last closing price, though it’s also worth noting that Micron’s shares are down by half over the last year due to the company’s on lackluster performance.
There’s no additional detail in the reports, including how Unigroup would fund the deal or any word of potential resistance from Washington. The buyer is part of Tsinghua University, China’s most prestigious science university. It embarked on its M&A into IT products and services more than a year ago, when it acquired 2 of China’s leading telecoms chip design houses, RDA Microelectronics and Spreadtrum.
Building a Powerhouse
Last year the company splashed into the global headlines when it sold 20 percent of itself to Intel for $1.5 billion, valuing Unigroup at around $7.5 billion. Earlier this year, it extended its buying streak when it paid nearly $3 billion bid for a controlling stake in H3C, a networking equipment maker that was previously fully owned by Hewlett-Packard.
It’s interesting to note that Unigroup seems to have access to plenty of cash, most likely from government sources, since this is a company that was probably worth perhaps around $1 billion before it embarked on its buying spree. The Intel and HP deals may have boosted its value to as much as $10 billion, but even that looks small compared to the $23 billion it’s now offering for Micron.
All that said, let’s look at how all these related but also somewhat different pieces might fit together into a bigger company. This latest purchase would give Unigroup a wide range of assets engaged in telecoms chips and networking equipment, as well as additional wireless technology developed by Intel. A Micron purchase would add memory chips to that arsenal.
This suite of products looks like Unigroup may be positioning itself to become an IT services provider like IBM, which often design and build internal networks for companies and government agencies. Beijing would desperately like to see such a company take shape, following its recent obsession with national security that has led it to distrust foreign technology suppliers.
This kind of approach would actually be advantageous to everyone, as it would allow big western names like Intel, HP and now Micron to have continued access to domestic network builders in China like the big banks and government agencies. At the same time, it would address Beijing’s security concerns by creating a Chinese partner to oversee the building of those networks.
Two big question will be whether rival bidders emerge, and whether Washington objects to a Micron purchase on national security grounds. But if Unigroup can overcome both of those obstacles, it could succeed in its bid for Micron, taking it one step closer it its drive to build a world-class IT product and services provider.