European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>Both Siltronic and Globalwafers expected the transaction to be completed in H2 2021, which has not yet happened. The closing remains subject to receipt of further regulatory approvals.</li>
<li>The deal has to be renegotiated if China and Germany do not approve the deal by 31 January (although Siltronic expects this to happen), in the context of strong growth.</li>
<li>
Gross spread at the closing share price on 28 December is 3.1%. Recommendation is long WAF GR. There is the possibility of further upside in case of terms renegotiation.</li>
</ul>


Both Siltronic and Globalwafers expected the transaction to be completed in H2 2021, which has not yet happened. The closing remains subject to receipt of further regulatory approvals.
The deal has to be renegotiated if China and Germany do not approve the deal by 31 January (although Siltronic expects this to happen), in the context of strong growth.

Gross spread at the closing share price on 28 December is 3.1%. Recommendation is long WAF GR. There is the possibility of further upside in case of terms renegotiation.


Globalwafers/Siltronic: Possibility of Terms Renegotiation

Senior Technology Analyst, Japanese Equities, LightStream Research

Scott Foster

Senior Technology Analyst, Japanese Equities

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

Year-on-year sales and profit comparisons turned positive in 2Q of FY Dec-21 and management is guiding for further improvement in 3Q. But the share price has dropped 23% since mid-July,Potential reasons for the sell-off include concern over the resurgent pandemic, price competition, an over-heated semiconductor market and plans for new green field investment, which could limit profitability.On the plus side, management reports that contract prices are firm, spot prices have started to rise and customer inventory has been declining. Supplies of both 300mm and 200mm silicon wafers remain tight.Taking an optimistic view of logic and memory demand over the next few years, we recommend buying into the current weakness.

Year-on-year sales and profit comparisons turned positive in 2Q of FY Dec-21 and management is guiding for further improvement in 3Q. But the share price has dropped 23% since mid-July,Potential reasons for the sell-off include concern over the resurgent pandemic, price competition, an over-heated semiconductor market and plans for new green field investment, which could limit profitability.On the plus side, management reports that contract prices are firm, spot prices have started to rise and customer inventory has been declining. Supplies of both 300mm and 200mm silicon wafers remain tight.Taking an optimistic view of logic and memory demand over the next few years, we recommend buying into the current weakness.

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Sino American Silicon Products / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/sino-american-silicon-products-inc" target="_blank" data-smartkarma-citation="entities:3441:1" rel="noopener">Sino American Silicon Products (5483 TT)</a>  is a Taiwan-based company mainly engaged in the research, development, design, manufacture, and distribution of semiconductor wafer products with subsidiaries in both listed and unlisted companies including <a href="https://www.smartkarma.com/entities/globalwafers-co-ltd" target="_blank" data-smartkarma-citation="entities:17916:1" rel="noopener">Globalwafers (6488 TT)</a> , <a href="https://www.smartkarma.com/entities/parade-technologies-ltd" target="_blank" data-smartkarma-citation="entities:6987:1" rel="noopener">Parade Technologies (4966 TT)</a> , <a href="https://www.smartkarma.com/entities/actron-technology-corp" target="_blank" data-smartkarma-citation="entities:4989:1" rel="noopener">Actron Technology (8255 TT)</a> and <a href="https://www.smartkarma.com/entities/advanced-wireless-semiconduc" target="_blank" data-smartkarma-citation="entities:16559:1" rel="noopener">Advanced Wireless Semiconduc (8086 TT)</a> with only in Globalwafers - SAS owns more than 51%.
The large discount between SAS and its subsidiaries could be due to 1) lack of bulge-bracket coverage, 2) higher polysilicon price 3) and 3) weak 1H demand from the solar and the semiconductor from COVID-19 plague which caused investors to care less about the value dislocation between SAS and its subsidiaries.
With a somewhat certain 28-30% gain in the earning as early Q1 2022, investors should start slowly building positions in SAS as the risk-off beast may disturb the confidence in the equity market much longer than what investors would like. The second scenario of increasing stake in Parade Tech should be treated as a call option as when it happens, it is a bonus of another 24%. Thus the total upside could be around 54%. 
<div class="content-highlight">
Besides the above-mentioned reasons, <a href="https://www.smartkarma.com/entities/sino-american-silicon-products-inc" target="_blank" data-smartkarma-citation="entities:3441:1" rel="noopener">Sino American Silicon Products (5483 TT)</a> remains a smart way to gain exposure in Globalwafers which trades at 24x PER, compared to SAS that trades at 13x PER. The other factor is that Globalwafers dividend yield is 2.28% while SAS is 5.22%. 
</div>

Sino American Silicon Products (5483 TT)  is a Taiwan-based company mainly engaged in the research, development, design, manufacture, and distribution of semiconductor wafer products with subsidiaries in both listed and unlisted companies including Globalwafers (6488 TT) , Parade Technologies (4966 TT) , Actron Technology (8255 TT) and Advanced Wireless Semiconduc (8086 TT) with only in Globalwafers - SAS owns more than 51%.
The large discount between SAS and its subsidiaries could be due to 1) lack of bulge-bracket coverage, 2) higher polysilicon price 3) and 3) weak 1H demand from the solar and the semiconductor from COVID-19 plague which caused investors to care less about the value dislocation between SAS and its subsidiaries.
With a somewhat certain 28-30% gain in the earning as early Q1 2022, investors should start slowly building positions in SAS as the risk-off beast may disturb the confidence in the equity market much longer than what investors would like. The second scenario of increasing stake in Parade Tech should be treated as a call option as when it happens, it is a bonus of another 24%. Thus the total upside could be around 54%. 

Besides the above-mentioned reasons, Sino American Silicon Products (5483 TT) remains a smart way to gain exposure in Globalwafers which trades at 24x PER, compared to SAS that trades at 13x PER. The other factor is that Globalwafers dividend yield is 2.28% while SAS is 5.22%. 


Sino American Silicon (5483): Entry to Globalwafers and Others

As of 22 January, <a href="https://www.smartkarma.com/entities/globalwafers-co-ltd" target="_blank" data-smartkarma-citation="entities:17916:1" rel="noopener">Globalwafers (6488 TT)</a> revised the terms of the offer for <a href="https://www.smartkarma.com/entities/siltronic-ag" target="_blank" data-smartkarma-citation="entities:21741:1" rel="noopener">Siltronic AG (WAF GR)</a>  and increased the bid price to €140 per share.
On 23 January, GlobalWafers announced that the offer price has been increased to €145, due to alongside purchases by GlobalWafers at such price.
<ul>
<li>The minimum acceptance threshold has been lowered to 50%.</li>
<li>The acceptance period has been extended to 10 February.</li>
<li>GlobalWafers said the offer is "final".</li>
<li>All other Ts&amp;Cs remain unchanged.</li>
</ul>
Shareholders who tender their shares will obtain €145 per share + €2 as FY 2020 dividend, in total €147 (I have just confirmed this with Siltronic's IR).
The 16% offer increase (vs. the initial €125 per share) by GlobalWafers represents a last push to ensure success of the takeover offer.
<ul>
<li>Since the last offer, GlobalWafers has accumulated a 4.53% stake, which along with the irrevocable undertaking from Wacker (i.e. 30.8%) represents 35.33%.</li>
<li>Obtaining acceptances from 22.7% of the float should not be difficult.</li>
</ul>
On 25 January, Siltronic opened at €144 is trading mid-morning at €141.45 (with over €42 million traded).
<ul>
<li>This represents a gross spread of 3.77%, including €2 dividend (before considering any withholding tax), c. 15% annualized assuming completion in three months. </li>
<li>Recommendation is Long Siltronic, the bid is very likely to succeed plus the shares are supported by good prospects for the semiconductor industry.</li>
</ul>

As of 22 January, Globalwafers (6488 TT) revised the terms of the offer for Siltronic AG (WAF GR)  and increased the bid price to €140 per share.
On 23 January, GlobalWafers announced that the offer price has been increased to €145, due to alongside purchases by GlobalWafers at such price.

The minimum acceptance threshold has been lowered to 50%.
The acceptance period has been extended to 10 February.
GlobalWafers said the offer is "final".
All other Ts&amp;Cs remain unchanged.

Shareholders who tender their shares will obtain €145 per share + €2 as FY 2020 dividend, in total €147 (I have just confirmed this with Siltronic's IR).
The 16% offer increase (vs. the initial €125 per share) by GlobalWafers represents a last push to ensure success of the takeover offer.

Since the last offer, GlobalWafers has accumulated a 4.53% stake, which along with the irrevocable undertaking from Wacker (i.e. 30.8%) represents 35.33%.
Obtaining acceptances from 22.7% of the float should not be difficult.

On 25 January, Siltronic opened at €144 is trading mid-morning at €141.45 (with over €42 million traded).

This represents a gross spread of 3.77%, including €2 dividend (before considering any withholding tax), c. 15% annualized assuming completion in three months. 
Recommendation is Long Siltronic, the bid is very likely to succeed plus the shares are supported by good prospects for the semiconductor industry.


On 9 December, GlobalWafers GmbH, a German subsidiary of GlobalWafers, entered into a BCA to acquire Siltronic from <a href="https://www.smartkarma.com/entities/wacker-chemie-ag" target="_blank" data-smartkarma-citation="entities:21742:1" rel="noopener">Wacker Chemie Ag (WCH GR)</a> and others for €3.8 bn.
<ul>
<li>Under the terms of agreement, GlobalWafers GmbH launches a tender offer to Siltronic shareholders. The largest ever deal for GlobalWafers.</li>
</ul>
The combination brings together Siltronic's technological leadership and GlobalWafers' supply chain management and competitive costs. Moreover, their product portfolios complement each other.
If this deal goes through, the market share of the top three wafer manufacturers could reach 86% from 74% currently (source: Gartner). Consolidation should bring discipline to pricing and capacity additions, which should benefit margins and price stability.
<div>
Other than higher average selling price, the acquisition of Siltronic by GlobalWafers would benefit the latter from higher exposure to 300mm wafers (with better growth prospects), with c. 65% of revenues coming from 300mm wafers (vs. 50% for GlobalWafers currently)
</div>
The offer price represents 2.7x EV/Fwd Revenue (vs. sector average of 2.6x), 8.9x EV/Fwd EBITDA and 21.6x P/Fwd E (vs. sector average 17.0x) and 4x P/20e BV (vs. sector average of 2.3x).
<ul>
<li>Company's compiled consensus TP is €127.23.</li>
<li>On this basis, I doubt that GlobalWafers will raise the offer.</li>
<li>That said, on 8 December, fund manager Argonaut Capital criticised the proposed deal for GlobalWafers to take over Siltronic, calling it inequitable to minority shareholders, an allegation Siltronic rejected as baseless.</li>
</ul>
<div>
The main issues regarding the closing of the transaction will be:
<ul>
<li>Minimum acceptance of 65%; therefore GlobalWafers needs acceptances from 52.6% of the float, not particularly demanding, in my view.</li>
<li>Uncertainty regarding Covid.</li>
<li>Antitrust, but there are limited risks, in my view. Siltronic + GlobalWafers should reach above 25% market share in 300mm wafers, behind Shin-Etsu (31%) and Sumco (around 26%).</li>
</ul>
Interloper risk seems low, this is a consolidated industry, and any of the other potential bidders would reach in combination with Siltronic a higher market share than Siltronic + GlobalWafers.
<div>
Siltronic opened at €126.7 on 20 December.
</div>
</div>
<div>
<ul>
<li>0.2% below GlobalWafers' offer, including dividend.</li>
</ul>
Recommendation: I would wait for share price weakness to set up a position.
</div>

On 9 December, GlobalWafers GmbH, a German subsidiary of GlobalWafers, entered into a BCA to acquire Siltronic from Wacker Chemie Ag (WCH GR) and others for €3.8 bn.

Under the terms of agreement, GlobalWafers GmbH launches a tender offer to Siltronic shareholders. The largest ever deal for GlobalWafers.

The combination brings together Siltronic's technological leadership and GlobalWafers' supply chain management and competitive costs. Moreover, their product portfolios complement each other.
If this deal goes through, the market share of the top three wafer manufacturers could reach 86% from 74% currently (source: Gartner). Consolidation should bring discipline to pricing and capacity additions, which should benefit margins and price stability.

Other than higher average selling price, the acquisition of Siltronic by GlobalWafers would benefit the latter from higher exposure to 300mm wafers (with better growth prospects), with c. 65% of revenues coming from 300mm wafers (vs. 50% for GlobalWafers currently)

The offer price represents 2.7x EV/Fwd Revenue (vs. sector average of 2.6x), 8.9x EV/Fwd EBITDA and 21.6x P/Fwd E (vs. sector average 17.0x) and 4x P/20e BV (vs. sector average of 2.3x).

Company's compiled consensus TP is €127.23.
On this basis, I doubt that GlobalWafers will raise the offer.
That said, on 8 December, fund manager Argonaut Capital criticised the proposed deal for GlobalWafers to take over Siltronic, calling it inequitable to minority shareholders, an allegation Siltronic rejected as baseless.


The main issues regarding the closing of the transaction will be:

Minimum acceptance of 65%; therefore GlobalWafers needs acceptances from 52.6% of the float, not particularly demanding, in my view.
Uncertainty regarding Covid.
Antitrust, but there are limited risks, in my view. Siltronic + GlobalWafers should reach above 25% market share in 300mm wafers, behind Shin-Etsu (31%) and Sumco (around 26%).

Interloper risk seems low, this is a consolidated industry, and any of the other potential bidders would reach in combination with Siltronic a higher market share than Siltronic + GlobalWafers.

Siltronic opened at €126.7 on 20 December.




0.2% below GlobalWafers' offer, including dividend.

Recommendation: I would wait for share price weakness to set up a position.


Germany

Siltronic AG manufactures hyperpure silicon wafers. The Company offers products including non-polished and epitaxial coated wafers with different diameter sizes. Siltronic caters its products worldwide for use in computers, smartphones, flat-panel displays, navigation systems, automotive engine control systems, and many other applications.

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Siltronic AG (WAF GR)

Globalwafers/Siltronic: Possibility of Terms Renegotiation

In the context of strong growth for the semis, the offer price is looking increasingly cheap. If German and Chinese regulators do not clear the...

Jesus Rodriguez Aguilar

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Share price down more than 20% since mid-July, offering a medium- to long-term buying opportunity. Silicon wafer supplies tight, pricing firm....

Scott Foster

Sino American Silicon (5483): Entry to Globalwafers and Others

Sino American Silicon remains a smart way to gain exposure in Globalwafers (24x PER), compared to SAS (13x PER). The other factor is that...

Henry Soediarko

GlobalWafers Ups Offer for Siltronic

On 25 January, Siltronic trades mid-morning €141.45 (over €42 mn vol.), gross spread 3.8% including divi (c.15% annual.) LONG Siltronic, bid likely...

Jesus Rodriguez Aguilar

GlobalWafers Cash Offer

The deal should benefit pricing power. I doubt that the offer will be raised. Siltronic trades 0.2% below the offer, including dividend. Wait for...

Jesus Rodriguez Aguilar

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