MediaTek, MStar Now One Green Light Away From Merger

MediaTek + MStar Semiconductor

MediaTek Inc., Taiwan’s largest chip-design house, is a step closer to merging with smaller rival MStar Semiconductor Inc. after South Korean regulators earlier this week gave the deal a green light.

The Korea Fair Trade Commission on Monday said it would approve the merger conditional upon three years of price monitoring. Now only Chinese regulators’ approval is needed, and the decision of Korean regulators makes it less likely that their Chinese counterparts will reject the deal, analysts say.

The planned merger, first announced nine months ago, would be the latest in a series of deals MediaTek has undertaken to diversify operations and increase market share in the face of strong competition in the global chip-design market.

In 2008, MediaTek bought the cellular-chip assets of U.S.-based Analog Devices Inc. (ADI) for US$350 million to obtain key wireless patents and an established customer base. In 2011, it acquired Taiwan-based rival Ralink Technology Corp. (3534.TW) through a share swap.

MediaTek said earlier that it is interested in acquiring companies that have strong technology capabilities in communications and digital home entertainment.

“We see the Korean decision as positive, as it means that China is unlikely to disapprove the merger. China is a far more fragmented market that is served by MediaTek, Mstar and several other smaller plays,” Bank of America-Merrill Lynch analyst Daniel Heyler said in a report.

MediaTek on Monday reset the merger’s completion date to Aug. 1. The original date, Jan. 1, had previously been pushed back to May 1 as the companies addressed anti-trust concerns and waited for regulatory approval in China and South Korea, where they are major players.

MediaTek, whose competitors include Qualcomm Inc., Broadcomm Corp. and STMicroelectronics N.V., works closely with handset makers ZTE Corp. and Huawei Technologies Co. in China. Its major clients also include handset makers Motorola Mobility Holdings Inc. and LG Electronics Inc.

Based in Hsinchu, MediaTek started out making chips for DVD players in 1997, and gained prominence in the global market after it started supplying low-cost wireless chipsets for basic phones.

Last year, MediaTek and MStar had a combined 80% of the worldwide TV chip market and 40%-45% share of semiconductors used in basic handsets, according to Nomura. Analysts said a merger would enable the companies to pool their talents and resources to speed up development of new products.

“MediaTek is strong in the phone chip market while MStar is the leader in TV chip market. The merger will help expand their addressable market and strengthen their competitiveness,” Nomura analyst Aaron Jeng said.

Meanwhile, the deal’s new completion date could underscore MediaTek’s commitment to the merger, and put the MediaTek-MStar-arbitrage trade back in motion, analysts said. MediaTek said in June that it would offer 0.794 share and NT$1 cash for each MStar share. On Thursday, MStar was trading at a discount of around 10% to MediaTek based on that exchange ratio.
By Lorraine Luk / Deal Journal – The Wall Street Journal


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