Micron Technology sees Inotera acquisition closing soon, confident of ability to fund company needs

By Paul Deckelman

New York, May 25 – Micron Technology, Inc. believes that the pending acquisition that would give it full ownership of its seven-year old Inotera Memories joint venture in Taiwan will close soon, as scheduled.

And the Boise, Idaho-based semiconductor manufacturer’s chief executive officer said that even with that roughly $4 billion purchase, the company should be able to meet its capital spending and other normal financial needs.

“We had mentioned mid-summer, July, I think, for a possible close date” for the Inotera transaction, CEO D. Mark Durcan told attendees at the 44th annual J.P. Morgan Global Technology, Media and Telecom Conference on Wednesday in Boston.

“You know that deals are never closed till they’re closed, but we’ll just continue to walk through all of those regulatory, environmental, [and] financing things,” he said.

In December, Micron – which already owned about one-third of Inotera – announced that it had agreed to acquire the joint venture’s remaining shares for consideration worth NT$30 per share or approximately US$0.92 per share. The deal would have a transaction value of approximately $3.2 billion, net of cash and debt at Inotera.

Micron said at the time that it expected to finance the approximate $4 billion cost for the remaining 67% equity ownership interest in Inotera with some $2.5 billion of debt, the payment of up to $1 billion of Micron equity to current 32% Inotera owner Nanya Technology Corp., of Taiwan, and cash from Micron’s balance sheet. Micron can terminate the transaction if it is unable to secure the $2.5 billion of debt on satisfactory terms.

Micron comes to market

Last month, Micron Technology raised $1.25 billion gross proceeds with the sale of new 7½% senior secured notes due 2023, which priced at par in a quick-to-market offering on April 14 after having been upsized from an originally announced $1 billion.

The company concurrently entered into a new $750 million six-year senior secured covenant-light term loan B financing, upsized from an originally planned $500 million.

The company did not specifically say that proceeds from the new bonds and term loan would be used for the acquisition, merely saying they would go toward general corporate purposes.

According to its most recent 10-Q filing with the Securities and Exchange Commission, covering the 2016 second fiscal quarter ended March 3, Micron had total debt at the end of the quarter of $7.62 billion not counting the new debt issued the following month. Cash and equivalents at the quarter’s end came to $3.08 billion.

Company has needs covered

During the question-and-answer portion of Durcan’s conference appearance following his formal presentation, the CEO was asked to address investor concerns that with the sizable price tag for the Inotera deal, Micron might not be able to meet its capex requirements and other needs.

Durcan said that although there were several different rationales for the Inotera transaction, including “operating efficiency as well as flexibility on a go-forward basis in terms of how to deploy the capacity, etc.” part of the rationale, clearly “was capturing the free cash flow associated with that joint venture.”

At the time of the deal’s announcement, Micron’s chief financial officer and vice president for finance, Ernest E. Maddock, said that the transaction “significantly increases the scale of our cash flows with combined last 12 months EBITDA of approximately $7 billion.”

He said that “the enterprise value of approximately $3 billion for the remaining interest in Inotera not currently owned by Micron represents a purchase price of approximately 2.2 times Inotera's last 12 months EBITDA. In addition to the cash flow benefits, this transaction is expected to have minimal impact to our overall leverage and Micron's previously announced fiscal 2016 capital expenditures.”

At the conference, Durcan noted the company had already made a large investment in 20 nanometer computer chip technology, and “the balance sheet has been deleveraged, so there would be negligible residual debt, so it actually provides free cash flow for investment, not only at Inotera but throughout the network.”

He also said that “relative to how we feel about ability to fund capex going forward, that always depends on what does the marketplace look like and it’s part of the self-correcting dynamic of the memory business, that you have cycles and when the market’s soft, people invest less. So we’ll continue to look at our business on a rational basis like we always do and try and justify our capital spend based on our return on invested capital.

“As long as we continue to do that, we’ll continue to generate reasonable returns and grow our business through time as he have for the last three decades.”

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.