Tsinghua's Bid for Micron (MU) Doesn't Make Sense for Micron Shareholders - Cowen
Cowen and Company is out with commentary on Micron (Nasdaq: MU) following news that Tsinghua made an unsolicited takeover bid for the company. Cowen currently rates Micron at Outperform with a price target of $30.
Analyst Tim Arcuri believes the deal (at $21/share) doesn't make sense for Micron shareholders, citing several reasons behind the rationale:
- First, we think that the US DOJ would not allow this to happen given the increasingly strategic nature of DRAM to INTC and the US technology sector. We also doubt that Tsinghua would be able to effectively manage MU's manufacturing assets in the US, so Tsinghua would effectively be paying for MU based only on MU's intellectual property as the operations would seem likely to suffer.
- Second, despite INTC owning a 20% stake in Tsinghua and part of our thesis is that a potential acquisition down the road to INTC adds some optionality, INTC would seem to find greater value in acquiring MU's portfolio outright given its longstanding partnership (since f06) and understanding of the growing importance of DRAM and NAND on its new Purley server platforms (something we wrote at length as part of our Outperform initiation on MU).
- Third, while it is becoming more common for Chinese SOEs to acquire US-based businesses, we do not completely rule out the possibility that China may have made this bid solely in order to show it remains committed to building a larger semiconductor industry despite the significant stock market correction in its domestic market.
- Fourth, and somewhat related to above points, we think that Tsinghua'fs unsolicited bid of MU would go against the pattern of its previous deals that were Chinese based (HC3, Spreadtrum - RDA is an exception), and this deal would seemingly go against the general pattern of Chinese SOEs' purchases of US firms that had significant Chinese management and/or operations prior to the deal.
For an analyst ratings summary and ratings history on Micron Technology click here. For more ratings news on Micron Technology click here.