Temasek’s Chartered Semicon sale speeds up chip industry exit

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Temasek Holdings Pte, which supported the development of Singapore’s US$26 billion ($37 billion) semiconductor industry for two decades, is one deal away from exiting the chip market entirely.

Abu Dhabi said yesterday it agreed to pay $2.5 billion for Chartered Semiconductor Manufacturing, the world’s third-biggest maker of customised semiconductors. Temasek, which owns 62% of the company, also controls 83.8% of Stats Chippac, Southeast Asia’s largest provider of chip-testing and packaging services.

Investors have speculated about a Temasek exit from the chip industry since its failed attempt to buy out and delist Stats Chippac two years ago. Stats Chippac and Chartered Semiconductor have slashed costs to weather the global slowdown that came amid slumping semiconductor prices and more competition from Taiwan.

“It would make sense to sell off Stats Chippac as well,” said Tan Ai Teng, an analyst at DBS Group Holdings Ltd. who recommends accepting Abu Dhabi’s offer. “Singapore has been trying to build the chip industry up for many years with little success, and it’s hard to compete against the Taiwanese.”

Temasek said on Aug 31 it was still considering whether to take Stats Chippac private. The investment company failed to win enough support from shareholders when it offered to buy the shares it didn’t already own in 2007.

“Trying to privatise Stats Chippac was among the first signs that Temasek was trying to divest those assets,” Tan said. “Privatise Stats Chippac first, restructure it and then divest it to another company and then perhaps try it with Chartered later, but the privatisation didn’t quite work out.”

Chartered Semiconductor shares rose 0.8% to $2.61 as of 11:21 a.m., while Stats Chippac fell 2.7% to 92 cents.

Temasek Transformation
“In our view, the valuation is fair and the proposed acquisition will give us the opportunity to realize a fair value for our investment in Chartered Semiconductor Manufacturing,” Rohit Sipahimalani, the managing director of investments at Temasek, said in an e-mailed response to questions. Temasek declined to comment on Stats Chippac.

Temasek, initially set up in 1974 to support the development of Singapore’s banks, airlines and ports, now holds stakes in financial services, real estate, telecommunications, energy and transportation companies in at least four continents.

The firm is the biggest shareholder in five of Singapore’s 10 biggest publicly traded companies by market value including Singapore Telecommunications, Southeast Asia’s biggest phone company, and DBS, the region’s largest bank by assets.

‘Remains Open’
Temasek has repeatedly said it regularly reviews its portfolio and “remains open at all times to maintain, increase or reduce its holdings in its portfolio companies.”

Assets of Temasek slumped by more than $40 billion in the 12 months ended March.

According to Temasek’s website, it has two major technology investments, Chartered Semiconductor and Stats Chippac, making up 2% of its total portfolio in 2008. It also holds stakes in telecommunications.

A plan to appoint Charles “Chip” Goodyear as successor to Chief Executive Officer Ho Ching was scrapped in July because of differences in investment strategy.

Since a 2008 review, Temasek’s investment strategy is centered around four areas, which it defined as transforming economies, the growing middle class, deepening comparative advantages and emerging champions.

Chips in Singapore
Singapore’s semiconductor industry, which employs about 40,000 people, accounts for about 11% of global chip sales, according to the Singapore Economic Development Board. Singapore has 14 wafer plants, 20 assembly and test operations and about 40 design centres.

Advanced Technology Investment Co., an investment company owned by Abu Dhabi, will pay $2.68 a share in cash for Chartered Semiconductor, ATIC said in a statement yesterday. That compares with the closing price of $2.66 on Sept 4, and is 14% more than the company’s 30 trading-day volume weighted average price. Temasek backs the deal.

Chartered Semiconductor, which fell as much as 3% in Singapore trading yesterday, has more than doubled this year.

“Chartered was a company that, despite its small size, did well in adding new customers and developing technology, but they never could monetize that because of their limited capacity,” Patrick Yau, an analyst at Macquarie Group, said in a phone interview from Hong Kong. “ATIC brings the scale it needed.”

Yau said he wouldn’t rule out a counteroffer from either Taiwan Semiconductor Manufacturing Co., the world’s biggest custom-chip maker, or United Microelectronics Corp., the No. 2.

Bigger Player
Abu Dhabi plans to combine the maker of chips used in Microsoft Corp.’s Xbox 360 game console with Globalfoundries Inc., a venture ATIC created with Advanced Micro Devices Inc. last year. That will create a challenger to the world’s second- biggest maker of customized chips. Temasek is ending a 22-year investment in the unprofitable company, which has eliminated workers and cut overtime to reduce costs.

Chartered Semiconductor was created in 1987 as a venture that included Singapore Technologies Engineering, another Temasek holding, and first sold shares to the public in 1999.

“Chartered has been a company that’s struggled to make a profit and it’s had to spend a lot in capital expenditure,” said Steven Pelayo, an analyst at HSBC Holdings Plc in Hong Kong who has rated Chartered Semiconductor’s stock “neutral” since March.

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