Monday, September 7, 2009

Chartered Semiconductor Offer Details


Following the fall of prices of Chartered Semiconductor after the lifting of the trading halt, there is a wider profit margin that makes it more attractive to look at. The story of ATIC, the Abu Dhabi Acquiror, and Chartered started since May 2009.

Chartered Timeline:

During the 28th May 2009, Business Times reported a rumor that ATIC is looking to buy Temasek stake in Chartered Semiconductor for around $2.4 to $2.6 per share. The stock went up 10%, to as high as $2.22 during that day. Chartered immediately deny any bids the next day and the price falls and rise gradually till another announcement in 12th June. Chartered revises the guidance upward for 2nd quarter and the prices rises to the high of $2.43 before falling gradually again.

The price hits the low of $1.8 during 17th July. Irony, since there was only 2 announcements before 17th July and both were not bad news. Perhaps, the interest of people anticipating the takeover of $2.4 to $2.6 wanes as no bids are made. The prices then slowly bounces back to $2.3 as the results of 2nd quarter are announcement at 24th July.

During August, some Directors acquire of small amount stock through the Restricted Share Unit(RSU). Not very sure what is it, but it should be related and similar to stock option. Finally, an official announcement of the bid is made today, 7th September.

Unlike Sihuan, I did not buy immediately because the profit margin was only 0.05% when I looked at it in the morning. The price now is around $2.60 instead of $2.66 at start. Luckily because of the unattractive margin, I did not get it at the $2.66 price range. If not, I will be sitting on top of a 3% loss immediately. Not sure of the reasons, perhaps some shareholders are cashing out after seeing the bid.

Nevertheless, it seems to be worth looking the offer in detail to determine if the deal will go through regardless of market movement. Besides the usual regulation and also some anti-trust laws requiring approval, there are quite a few financial requirements for Chartered.

* Diminution(Decline) in Company's consolidated Total Equity to an amount < US$1,400m.
Unaudited @ June 2009 was $1,593m.

* Net revenue, excluding net revenue of SMP(Silicon Manufacturing Partners), from 1st July to 30th November > US$550m.
Unaudited @ June 2009, half year net revenue was $593m, unsure of revenue from SMP.

* Cash and equivalents > US$585m.
Unaudited @ June 2009 was US$774m.

* Reduction of order not less than 15%

Note that I simplified most of the details, and the document mentioned more clearly with the various test dates, and the different conditions for various dates. Despite the higher profit margin of around 2.38%, I prefer to wait for the end of tomorrow to decide whether to buy it or not. Because today US market is closed for holiday, Chartered might experienced more changes when the US market open since it is also traded on that exchange.

References:

  1. The Wall Street Journal - Temasek Considers Offer for Chartered Stake (The Business Time article is archived and not free, so I referenced this instead)
  2. SGX - Chartered Rejects any bid from ATIC during 29th May amid rumors
  3. SGX - Chartered revise guidance upward for 2nd Quarter
  4. Reuters - Moody's says may cut Chartered Semi's rating



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