The dilemma of valuation in chip industry state-owned mergers and acquisitions

National level to promote the development of the chip industry a new wave of policy, emphasizing the idea of market-based support is obvious.

Compared with the previous support for the development of the chip industry, article 18th, 4th, the State Council recently approved the implementation of the "National Integrated circuit Industry Development Program" proposed to set up a national industrial investment fund. People close to policymakers say the investment fund, which could exceed $100 billion trillion, should not be financed entirely from the Treasury, but will attract large companies, financial institutions and social funds to fund the funds.

This has widened the source of funds, on the other hand, the participation of various funds, but also let the fund in the future investment, mergers and acquisitions activities in the professional operation to create the foundation.

In addition, the wording of the "advance platform" also emphasizes the dominant position of enterprises in many places, emphasizing "stimulating the vitality and creativity of enterprises" and "strengthening the status of technological innovation in enterprises".

Industry pre-award, by this impetus, the domestic chip industry's investment and mergers and acquisitions case will increase rapidly. In fact, the more sensitive policy sense of the state-owned enterprises have made an advance layout, of which the most representative of the original Shanghai's three NASDAQ China chip concept stocks-exhibition, RDA, LAN technology-from the beginning of last year have been the state-owned enterprises fancy, relay privatization.

So far, the purple Light group to privatize the exhibition of transactions has been completed at the end of last year; CEC and Shanghai Pudong Branch have also signed a merger and acquisition agreement, to await the meeting of shareholders and the regulatory authorities "clearance" stage; in RDA's deal, despite a "path" dispute between the Violet Group and Pudonko, But some insiders expect the deal to be finalized within a short period of time.

Believe that these trading cases are only the prelude to the market, the future with the national level and the level of local government at all levels of industrial investment funds in place, chip industry investment and acquisition will also set off a greater climax.

However, only in the current few cases to analyze, the state-owned investment in chip companies in the operation of the valuation dilemma has already emerged.

First of all, let's look at the case of LAN technology. Pudong branch to the LAN-tech board of Directors issued the acquisition date is March 10 this year, and the LAN technology in the Nasdaq listing time is last October 1. In other words, LAN technology in the arduous IPO after only 5 months, embarked on the trip to the city.

View the technology at the time the IPO prospectus found that the company paid only millions of dollars for commissions and fees for investment banks and underwriters to land on Nasdaq.

LAN from the technology and Pudonko cast all in Shanghai, can be said to the Pudonko, the acquisition of the LAN should not be the projection of the idea, but why should it become Nasdaq listed companies after the start?

Wenjun, a chief analyst at Isuppli Semiconductor, told the 21st century economic reporter that the key factor was valuations. For a unlisted company, especially in the technology-intensive and cyclical industry, the state-owned capital is apt to be confronted with the "loss of state capitals" in the valuation problem.

Second, the state-owned investment in the merger and acquisition of listed companies in the ethical risk will be much smaller, after all, the stock market to the listed companies a market-based valuation frame of reference. Looking back, the current public awareness of the three major power chip industry investment transactions, the target are listed companies.

Look at RDA's deal again. Purple light Group and Pudonko cast for the company is "a fight". RDA announced November 12 last year that it had reached a takeover deal with the purple-light group, priced at $18.50 per share, with a total price of about 910 million dollars. Prior to this, Shanghai Pudong branch has made an advance offer to the Pudonko, the price of the bid for 15.50 U.S. dollars/ads, a total of 745 million U.S. dollars.

In the face of Xiecili killed the purple light group, Pudonko cast argument, in addition to the Purple Violet Group has not been the national Development and Reform Commission "path Bar", another can be said is "loss of state funds suspicion." Violet Group bid more than a billion dollars, and RDA's largest shareholder is the foreign investment company Warburg Pincus, so that Warburg Pincus will earn more than 50 million dollars.

RDA, a listed company, is still in dispute, and China's investment in the face of unlisted companies must be more stressful.

In view of this, it is necessary to face the valuation dilemma in the process of state-owned investment acquisition under the background of the State's proposal to set up a chip industry investment fund. Specifically, it is to establish an operational valuation coordinate system to balance the current value, potential value and acquisition premium of a firm.

Only such a system design in place, can on the one hand for the state-funded loosening, for more urgent funds to bigger and stronger chip enterprises to bring help, on the other hand, effectively evade the "billions of national feast" process may appear rent-seeking behavior.