Micron in negotiations to acquire Elpida

US memory chip maker to buy distressed Japanese rival

Top-10 US semiconductor manufacturer Micron has opened negotiations to purchase Elpida, its Japanese rival that filed for bankruptcy protection in February. The news was confirmed in a statement from both Elpida and Micron this week.

Micron, which specialises in memory chips, would be an ideal fit for Elpida, according to analysts.

"Micron needs to look for some cheap capacity to increase its manufacturing footprint - Elpida would be an ideal purchase if the price is right," said Mike Howard, senior principal analyst, DRAM and Memory, at IHS iSuppli.

Elpida had filed for bankruptcy protection in February after a disastrous year in which the Japanese yen had increased in value, while the price of DRAM had crashed, even though it had not been significantly affected by the earthquake and tsunami that hit Japan in 2011. Instead, its demise has been attributed to the weight of the debt it acquired in an ill-judged expansion and rush for market share in 2004 and 2005.

After the market crashed in 2008, it had been bailed out by the Japanese government in the following year, but was unable to pay off much debt during the market rally in 2009 and 2010.

"They've had an uncompetitive cost structure for several years and haven't matched it with a premium customer portfolio. It took on too much debt during the middle of the last decade and that has haunted it until today," said Howard.

Elpida had been formed from the merger of the memory-chip design and manufacturing operations of NEC, Hitachi and, later, Mitsubishi Electric, and was the main supplier to Kingston Technology.

Micron is one of a number of suitors for Elpida that had put forward bids before the deadline closed at the beginning of May. Other bidders had included Toshiba, Hynix and the private equity firms TPG Capital and Hony Capital.

Micron in negotiations to acquire Elpida

US memory chip maker to buy distressed Japanese rival

Toshiba and Hynix both dropped out of the running in the past week. Toshiba decided not to join the second round of bidding after its first-round bid came in well below Micron's - which is reportedly at least 150 billion yen (£1.1bn) - and it failed to persuade any potential partners to make a joint bid in the second round. It had reportedly been in talks with Hynix about a joint bid, but the two companies failed to reach agreement.

Toshiba had left the commodity DRAM business in 2001 when it sold its US memory-chip fabrication facility to Micron, and is also in the process of rationalising its fabrication facilities in Japan.

TPG manages $49bn (£30bn) in private equity funds globally and has previously invested in Freescale Semiconductor, MEMC Electronic Materials and Micron's Aptina Imaging. Hony, meanwhile, is sponsored by Legend Holdings, which also controls Lenovo Group, the PC maker that acquired IBM's PC business.

Bidders, suggest analysts, will be interested in Elpida's position in the mobile memory market, where it enjoys a 17 per cent share, and its magneto-resistive random access memory (MRAMtechno) technology. It has also started sampling 25 nanometre DRAMs.