Caixin
Nov 10, 2016 06:14 PM
M&A

Acquisitive Chip Aspirant Unigroup Buys 5% of SMIC on Open Market

(Beijing) – Leading Chinese chip maker SMIC said Thursday that a recent purchase of more than 5% of its shares by Tsinghua Unigroup is a pure financial investment, following a string of failed or sputtering attempts at major acquisitions by Unigroup over the last two years.

Based in the prestigious Tsinghua University, China's leading sciences institution, Unigroup and several sister companies have embarked on a global buying spree over the last two years in a bid to build a homegrown giant making high-tech chips that power everything from cellphones to smart appliances.

But many of their largest attempts at overseas buying have collapsed or are sputtering due to opposition by local governments, which suspect the company is closely tied to Beijing and are reluctant to yield their own high-tech giants to Chinese control.

Shanghai-based Semiconductor Manufacturing International Corp. (SMIC) said it recently learned that Unigroup had built up a stake in the company by purchasing shares on the open market. A separate stock exchange filing showed that Unigroup held 5.25% of SMIC's shares as of Nov. 1.

SMIC said its managers met with Tsinghua executives in Shanghai and, following those discussions, it understands that Unigroup "intends to hold the company's shares as a financial investor and does not intend to nominate any board member of the company."

"Tsinghua Unigroup's cumulative shareholding in the company will not change (SMIC's) corporate nature or its independent and international mode of operation," SMIC said, adding that the wording of its brief statement had been confirmed by Unigroup.

China is the world's largest consumer of semiconductor chips that form the brains of the many electronic gadgets and other devices manufactured in the country. But the big majority of those chips are imported, a situation that Beijing wants to change in a bid to move up the value chain to develop businesses with higher profit margins.

Unigroup has been one of the most aggressive to answer Beijing's chip call, saying last year that it had a war chest of 300 billion yuan ($44.26 billion) to spend on acquisitions. The company already has partnerships with leading U.S. chipmaker Intel and networking equipment maker HP Inc., though neither involves any equity ownership of the partner company.

Last year Unigroup entered discussions to buy leading U.S. memory chip maker Micron Technology Inc. for $23 billion, but the talks reportedly collapsed over Micron's concerns the deal would get vetoed by Washington. A separate deal that would have seen U.S. disk drive maker Western Digital Corp. sell 15% of itself to Unigroup sister company Unisplendour for $3.8 billion also collapsed earlier this year for similar reasons.

Unigroup has several pending major chip investments in Taiwan that are also hitting resistance due to opposition from the island's government.

Contact reporter Doug Young (dougyoung@caixin.com); editor Ken Howe (kennethhowe@caixin.com)

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