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MediaTek and MStar shares surge after acquisition deal

MediaTek and Mstar shares soared yesterday after announcing an acquisition deal last week, which was seen as positive for both integrated circuit (IC) designers, dealers said.

MStar yesterday closed at its daily 7 percent limit of NT$195, with 130,000 units of buy orders unfilled at the end of the session. Each stock unit is 1,000 shares.

MediaTek, meanwhile, closed at NT$280.5, up 2.37 percent. The firm had at one point surged by over 5 percent.

MediaTek's partners including King Yuan Electronics and Sigurd also rose on anticipation they might benefit from the deal.

MediaTek announced Friday that it will acquire a 40- to 48-percent stake in MStar in a tender offer between June 25 and Aug. 13 after months of intensive negotiations.

Under the deal, MStar's shareholders will get 0.794 MediaTek shares and NT$1 in cash for every MStar share they hold.

MediaTek said after concluding the tender offer that it will soon open the next stage of the acquisition of MStar and plans to complete the merger of the two companies in early 2013.

Separately, Japanese brokerage Nomura Holdings Inc. said yesterday MediaTek Inc. will face short-term gain and mid-term pain after it decided to acquire smaller domestic rival MStar Semiconductor Inc.

In a research note, Nomura said the deal shows the long-term ambition of MediaTek Chairman Tsai Ming-kai and MStar Chairman Wayne Liang to build a global-scale semiconductor fabless company in view of the nature of competition and growth in the industry over the next three to five years.

“The immediate benefits that we expect are easing competition and better cost negotiating power. However, these are not strong enough to drive the top two Asia fabless companies to consolidation,” said Aaron Jeng, a Taipei-based Nomura analyst.

“We believe the key to the success of the deal is about execution and resource reallocation,” said Jeng, who maintained a “buy” rating on MediaTek and kept a target price of NT$320 on the stock.

Nomura estimates that 80 percent of MStar's workforce, mainly in handsets and televisions, does the same work as people at MediaTek.

“Our concerns, which we will watch closely, are whether the new MediaTek can retain MStar's talent and efficiently utilize the overlapping workforces,” he wrote.

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