Micron, Hynix have long way still to go

SEOUL, April 23 (UPI) -- Hynix Semiconductor Inc. has reached a long-awaited deal to sell off its core memory business to Micron Technology Inc., which would help South Korea take off a major burden on government-led corporate restructuring efforts.

But the ailing chipmaker is still facing high hurdles to clear before striking a final breakthrough, analysts say.

The memorandum of understanding requires board approval from both companies and support from Hynix's creditors, shareholders and union. If the deal fails to win their approval by the end of April, the memorandum would be nullified.

Amid growing criticism that negotiators made too much concession to Micron, shareholders and unionized workers expressed their opposition to the agreed deal, citing worries about stock value and job security. Strong antipathy here toward selling big businesses to foreign companies adds doubts that a final deal with the U.S. chip giant could be struck.

Individual investors, who own more than 80 percent of Hynix's share, declared Tuesday they would take joint measures against the deal. The shareholders are concerned that the value of the stock may decrease if Micron strips out memory operations that generate 70 percent of Hynix's business.

In a statement, the shareholders urged the government and creditors to stop forcing the "fire sale" of the troubled chipmaker. They said the acquisition price of $3.2 billion Micron agreed to pay for Hynix's memory chip business is too low, insisting its value is estimated at about $12 billion.

They said that the troubled company could emerge as the world's largest chipmaker if its creditors save the company and write off the current debt of 4 trillion won ($3 billion). "All 370,000 minority shareholders will join hands to block such absurd fire sales," the statement said.

Under the MOU, Hynix agreed to sell off its memory chip operations for about 108.6 million Micron shares worth between $3.4 billion and $3.8 billion. Micron agreed to take a 15 percent stake in Hynix's non-memory unit for additional $200 million. The contract was based on Micron's share prices of $29.5 last Friday. Critics say Hynix might assume an additional burden if Micron share prices fall below $26.

Creditors of Hynix also agreed to extend $1.5 billion in fresh funds for Micron Korea, a new company to be set up by the U.S. chipmaker to take over Hynix's assets. But Micron rejected to guarantee the loans.

"The MOU is subject to approval by the Hynix creditor council and the boards of directors of Hynix and Micron by April 30, 2002. The transactions will also be subject to successful negotiation of definitive agreements and approvals from a number of parties, including U.S. and European antitrust authorities and the Hynix shareholders," Hynix said in a statement.

Kim Kyung-mo, an analyst at Mirae Asset Securities, said individual shareholders' opposition would the biggest huddle for Hynix creditors to overcome for a final deal. Kim and other analysts also point out that the MOU is a non-binding contract in which both sides are not required to abide by.

Rival chipmakers are also expected to seek actions against the Micron-Hynix merger which will create the world's largest memory chipmaker. With Hynix's memory chip assets, second-ranked Micron would control about 34 percent of the dynamic random access memory, or DRAM market, leapfrogging South Korea's Samsung Electronics. Third-ranked Hynix would exit the memory sector to focus on non-memory chips used in mobile phones and other devices.

Hynix's union also threatened to stage a general strike to protest against the deal. "We are opposing the sale of Hynix," union leader Chong Sang-yong said in a statement. "We will stage all-out struggles if government and creditors force the sale," Chong said, adding his union will not approve the "forcibly-signed" MOU on the sale.

Not a few industry analysts and shareholders are still asking for the government and creditors to seek independent survival for Hynix, warning its sale to a foreign rival would devastate the base of South Korea's semiconductor industry, which has served as an engine for the country's export-driven economy.

They said Hynix could survive on its own without an alliance thanks to a rebound in chip prices. Shin Kook-hwan, who had served Hynix's restructuring chief before taking over Commerce, Industry and Energy Minister in February, said that Hynix could survive without selling assets if the price of the 128 megabit DRAM chips hovers at around $4.

Last week, Hynix posted its first net profit in 15 months, thanks to rebounding spot prices for standard DRAM chips. An unprecedented downturn in chip prices caused Hynix to post a record net loss of $3.8 billion last year and led to alliance talks with the Micron in December.

"I cannot understand why the government and creditors agreed to sell off the key assets at a giveaway price," said an official at Hynix's restructuring committee who asked for anonymity. "Independent survival for Hynix is considered the best option for the national interests," said Park Byung-chul, an economist at Hyundai Economic Research Institute.

Despite protests, government officials and Hynix creditors vowed to push for the deal with Micron "We will produce a final deal within May," said Lee Duk-hoon, head of state-run Hanvit Bank, a key Hynix creditor.

"The deal would help dispel uncertainties over markets," said a Finance and Economy Ministry official. Earlier this month, bankrupt Daewoo Motor Co. struck a deal to sell its core assets to General Motors Corp., clearing the way for South Korea to restructure its troubled auto industry.

The troubles of Hynix and Daewoo have been major burdens on President Kim Dae-jung's government, which has been trying to reform the country's inefficient corporations and financial system. "The Hynix-Micron deal is expected to help the economy keep an upward momentum," said Jo Yong-chan, an economist at Daeshin Economic Research Institute.