Taiwan’s biggest tech deal ever sends stocks soaring

At $US6.2B, Innolux Display's acquisition of Chi Mei Optoelectronics is Taiwan's biggest merger to date

Technology shares in Taiwan soared on Monday after LCD monitor maker Innolux Display announced its intention to buy Chi Mei Optoelectronics, the biggest acquisition ever on the island and one that will reshape Taiwan's display industry.

The deal follows similar moves by technology companies around the world to acquire rivals and better position themselves for a global economic rebound.

Innolux Display on Saturday announced the deal to buy Chi Mei, Taiwan's second largest LCD screen maker, in an all-stock deal valued at NT$199.5 billion (US$6.2 billion). The purchase dwarfs similar deals on the island. The purchase of Quanta Display in 2006 by Taiwan's top LCD screen maker, AU Optronics, was valued at NT$72 billion.

The agreement sent technology shares on the Taiwan Stock Exchange higher on Monday. The electronics index of the exchange soared 5.3 percent, while the market's main index rose 1.7 percent. Shares of Chi Mei rose 6.9 percent to NT$20.10, while shares of Innolux added 3 percent to NT$48.4.

The deal will reshape Taiwan's LCD industry. Innolux and Chi Mei combined, which will become Chimei Innolux Corporation, will be the top producer of LCD screens on the island, surpassing incumbent AU Optronics. Innolux is the world's biggest contract maker of LCD monitors, and is an affiliate of Hon Hai Precision Industry, the world's largest contract electronics maker.

The acquisition will give Innolux a new, local source for LCD screens, the most expensive part of a monitor or laptop PC, said Nicholas Teo, LCD industry analyst at Macquarie Securities in Taipei. The company will gain other advantages through the deal, including more leverage to ask customers for more business.

Terry Gou, chairman of Hon Hai Precision Industry, the largest shareholder of Innolux, said the deal would help Taiwan compete with South Korean giants Samsung Electronics and LG Display, which rank number one and two in the world in LCD screen manufacturing, respectively.

But Teo said the acquisition will also increase trade between Chimei Innolux and the South Korean giants because Innolux currently buys so many LCD screens from the two companies.

"Basically they will work with, instead of compete against, each other," Teo said. "Innolux is a big customer of the Korean companies." Innolux also manufactures LCD monitors for the two Korean giants, he said.

The companies may compete in some businesses, but they are partners in others, he said.

Technology companies globally have been on a buying spree this year. Oracle announced in April it planned to purchase Sun for US$7.4 billion, while Xerox agreed to buy business process outsourcer Affiliated Computer Services for $US6.4 billion. Networking giant Cisco Systems has announced plans to buy two companies recently, videoconferencing vendor Tandberg for about $US3 billion and Starent Networks for $US2.9 billion. Hewlett-Packard last week offered to buy networking switch maker 3Com for $US2.7 billion.

The deal between Innolux and Chi Mei Optoelectronics is expected to close on May 1 2010.

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