2024-06-10 - tech

Jiangdian Technology plans to acquire 80% of SanDisk Semiconductor for US$624 mi

JCET Technology continuously strengthens itself through acquisitions.

On March 4th, JCET Technology announced that its wholly-owned subsidiary, JCET Management Co., Ltd., plans to acquire 80% of the equity held by SANDISK CHINA LIMITED in Sheng Die Semiconductor (Shanghai) Co., Ltd. for a cash consideration of approximately $624 million. The parent company of Sheng Die Semiconductor is Western Digital.

It is reported that Sheng Die Semiconductor, established in 2006, is mainly engaged in the packaging and testing of advanced flash memory storage products, including types such as iNAND flash memory modules, SD, and MicroSD memory cards.

The announcement shows that the board of supervisors believes: this acquisition of equity complies with the relevant regulations of the China Securities Regulatory Commission and the Shanghai Stock Exchange on listed companies' purchase of assets, aligns with the company's strategic development plan, and is conducive to enhancing the company's sustainable development capabilities, as well as improving its market competitiveness and profitability.

The reporter noticed that JCET Technology did not disclose the specific content regarding performance compensation with the seller of Sheng Die Semiconductor. JCET Technology's announcement indicates that the two parties will sign a separate agreement to stipulate performance compensation matters.

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According to JCET Technology's announcement, Sheng Die Semiconductor achieved operating income of approximately 3.5 billion yuan and 1.6 billion yuan in 2022 and the first half of 2023, respectively; and achieved net profits of approximately 360 million yuan and 220 million yuan, respectively. As of the end of June last year, Sheng Die Semiconductor's total assets were about 4.36 billion yuan, and its net assets were about 3.28 billion yuan.

According to the assessment conclusion given by the appraisal institution, the total equity value of Sheng Die Semiconductor's shareholders is about 5.66 billion yuan. Compared with the book value, the total equity appraisal increased by about 2.37 billion yuan, with an appreciation rate of 72.18%.

After negotiation and agreement between the buyer and seller, the valuation of the target company for this transaction is determined to be $780 million, which is approximately 5.64 billion yuan after conversion at an exchange rate of 7.2, slightly lower than the appraisal price.It is worth noting that the parties have also agreed to enter into a separate "Supply Agreement," stipulating that SSSC (Sheng Die Semiconductor) should achieve the lower limit of the performance targets agreed upon by the transaction parties within 5 years after the closing. If SSSC fails to meet the lower limit of such performance targets, SANDISK CHINA LIMITED should compensate SSSC for the portion of the unmet performance targets' scheduled gross profit.

Furthermore, after the completion of the acquisition, the board of directors of SSSC will consist of 5 directors. Among them, Chang Dian Management Company has the right to appoint 3 directors to SSSC, and SANDISK CHINA LIMITED has the right to appoint 2 directors to SSSC.

It should be noted that there are differences in market views between Chang Dian Technology and Western Digital, which has also led to different strategies for buying and selling assets between the two parties.

Western Digital's annual report shows that its revenue for the fiscal year 2023 was approximately $12.3 billion, a significant decrease compared to the $18.8 billion in the fiscal year 2022. Of this, Western Digital's revenue in China for 2023 was about 2.8 billion yuan, a noticeable decline from the $4.5 billion in 2022.

Regarding the decline in revenue, Western Digital stated: "Macroeconomic factors, such as inflation, higher interest rates, and concerns about economic recession, have weakened the demand for our products. Due to specific customers adjusting their production levels and rationalizing inventory, we and the industry are experiencing an imbalance of supply and demand, which has led to a decrease in shipments and particularly had a negative impact on pricing in the flash memory sector. Although the supply and demand imbalance began to stabilize in the third quarter of 2023, especially in the customer and consumer sectors, we still face a dynamic market environment."

"Since 2023, to adapt to these conditions, we have taken a number of strategic measures. These include reducing capital expenditures, consolidating production lines, and reducing bit growth to meet market demand. In addition, we have also taken measures to reduce operating expenses. However, these adjustments have led to increased costs, including employee layoffs, asset impairments, and other expenses." Western Digital stated in its annual report.

Chang Dian Technology is more optimistic about the future of the storage chip sector. Chang Dian Technology stated that according to WSTS statistics, storage chips are the second-largest segment of the semiconductor market, accounting for about 28%, and the storage chip market size is expected to reach $130 billion in 2024. In the global storage market, the scale of NAND flash memory chips accounts for about 40%, with a compound annual growth rate of 8% from 2021 to 2027.

Chang Dian Technology said that SSSC is mainly engaged in the packaging and testing of advanced flash memory storage products, which are widely used in mobile communications, industrial and IoT, automotive, smart home, and consumer terminal fields. Its factories are highly automated and have high production efficiency.

"After the completion of this transaction, the seller and its parent company will continue to be the main or sole customer of the target company for a period of time, ensuring a certain level of the target company's operating performance. The listed company will consolidate the financial statements of the target company based on its wholly-owned subsidiary's 80% equity in the target company, which will help to enhance the company's long-term profitability and increase shareholder returns." Chang Dian Technology stated.

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