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Micron deals for Hynix plant.

Byline: CHRISTIAN WIHTOL and ED RUSSO The Register-Guard

The Hynix chip factory in west Eugene plus five others in South Korea would become part of Boise-based Micron Technology Inc. under a tentative deal the companies unveiled Monday.

Under the memorandum of understanding, Micron would buy the plants from its South Korean rival for $3.8 billion in stock, creating the world's largest memory-chip maker.

If the deal goes through, Micron doesn't anticipate making changes at the 650-worker Eugene plant, Micron spokesman Sean Mahoney said.

Analysts agreed that Micron would probably keep the Eugene plant running because Hynix has just spent about $150 million upgrading equipment to make 256-megabit DRAM, the industry's emerging standard.

The Micron/Hynix transaction has been in the works for months, and officials in South Korea had previously leaked some of its elements to Korean newspapers.

Whether the deal will be consummated is uncertain. While Micron and Hynix executives now publicly embrace the broad outlines, the deal still needs approval from Hynix's creditor banks, which would get most of the proceeds. Some creditors have said they think they might fare better by keeping Hynix intact and betting that the world chip market continues to rebound.

The creditor banks, owed $4.9 billion by Hynix, essentially control the all-but-bankrupt chip maker. In the new deal's favor, however, creditor banks had a role in crafting the plan that was announced Monday.

With the memo of understanding now in hand, Micron will scrutinize Hynix's plants, including the one in Eugene, while Hynix stakeholders decide what to do, Mahoney said.

"This opens the door for due diligence, for us to go and inspect what the properties are, what the assets are," Mahoney said.

There's no clear timetable for when creditor banks will make a final decision. But Hynix and Micron want to reach a final contract by late May, said Lee Duk Hoon, CEO of South Korea's Hanvit Bank, who negotiated the current agreement on behalf of other creditor banks.

Under the tentative deal, Micron would give Hynix about 108.6 million shares of common stock for the DRAM plants, plus $200 million in cash for a 15 percent stake in Hynix divisions that make other semiconductors. Also, Micron would borrow $1.5 billion from Korean banks.

After selling the six DRAM plants to Micron, Hynix would be left with a half-dozen chip factories in South Korea.

Plants at knock-down prices

A sale would cap a turbulent history for Hynix - formerly Hyundai - in Eugene. Industrial conglomerate Hyundai began building the factory in 1995 as part of a planned diversification into high-tech and expansion into the U.S. market. But the Hyundai empire splintered, burdened by debt and the Asian economic slowdown of the late 1990s. Hyundai spun off its semiconductor operations under the Hynix name. But Hynix has struggled with heavy debt and sagging demand for chips.

Micron, meanwhile, has taken advantage of the chip industry's overcapacity woes to go on a shopping spree and pick up potentially valuable operations on the cheap.

A single memory-chip plant would cost about $2 billion to build new, said Richard Gordon, semiconductor analyst with Gartner Dataquest, a Massachusetts-based research company.

"Micron's motivation in all of this is to get ahold of capacity and market share at a knock-down price," Gordon said.

Micron on Monday said it has completed purchase of the Dominion DRAM chip factory in Virginia from Toshiba Corp. for $294 million in cash and stock. Toshiba laid off an undisclosed number of workers from the factory before completing the sale.

Victor de Dios, a computer memory analyst at de Dios & Associates in Newark, Calif., said there are compelling reasons for Micron to keep the Eugene plant running.

The plant has a non-union work force, de Dios noted. It is "local, it has the same culture, and it's almost in the same time zone" as Micron's Boise headquarters, he added.

Hynix has already trimmed many jobs at the plant. Until last summer, Hynix employed about 800 workers there. Then, the company laid off 400 workers and largely shut down for the equipment upgrade. Now running again, the plant employs about 650.

Micron has deeper pockets than Hynix, and that should lead Micron to make continued innovations at the Eugene plant, de Dios said.

If Micron seeks to cut workers and reduce production, it will probably do that at the Korean factories, Gordon said.

Fewer competitors

The deal would raise Micron's share of the $11 billion memory-chip industry to more than 33 percent, unseating Samsung Electronics Co. as the top maker of DRAM chips for personal computers. But even with Hynix, Micron still wouldn't control enough of the market to dictate prices, investors said.

``In the short term, this is a good purchase because there will be less companies selling DRAMs,'' said Alex Vallecillo, who oversees tech stocks for National City Corp. ``This is part of the solution to the long-term problems for Micron.''

Investors liked the news. On a weak day for stocks, Micron rose $1.40 to close at $30.90.

Micron would gain six fabrication plants and static random- access chips and flash memory chips that it didn't make previously.

The combined company will be able to lower costs to increase profit, investors said. The acquisition would almost double Micron's production capacity and reduce research and development costs, spokesman Mahoney said.

The cost in all this to Micron is largely on paper - the company would issue 108.6 million new shares to give to Hynix, diluting the current pool of Micron shares by 17 percent.

Micron guaranteed that its shares will be valued at $35 each when the transaction is completed, valuing the stock portion of the purchase at $3.8 billion, said Song Joo Kyung, an official at Korea Exchange Bank, a Hynix lender. Micron shares have averaged $33.79 this year.

Hanvit's Lee said Hynix's bank creditors should weigh the best interests of the Korean economy. Hynix has about 15,000 employees in South Korea and provides about 4 percent of the country's exports.

``Providing a return for creditors was less important than guaranteeing a future for the company,'' Lee said.

Micron expects U.S. and European antitrust regulators to examine the transaction, he said.

Bloomberg News contributed to this report.

MICRON TECHNOLOGY INC.

Headquarters: Boise

Employees:18,100

Financial results: Loss of $625 million on sales of $3.9 billion in 2001; profit of $1.5 billion on sales of $7.3 billion in 2000

Manufacturing facilities: United States, Britain, Singapore, Japan, Italy, China

CEO: Steve Appleton

Web site: www.micron.com

- Micron, Hoover's Handbook
COPYRIGHT 2002 The Register Guard
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2002, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Technology: If the $3.8 billion sale goes through, it would create the world's largest memory-chip maker.; Business
Publication:The Register-Guard (Eugene, OR)
Geographic Code:1USA
Date:Apr 23, 2002
Words:1097
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