SK Hynix ponders fate of Kioxia stake after bids by Micron, WDC

The reported bids to buy Japanese chipmaker Kioxia Holdings Corp. by Micron Technology Inc. and Western Digital Corp. is raising market chatter over the fate of the Kioxia stake held by South Korea’s SK Hynix Inc.

According to the investment banking industry on Apr. 2, SK Hynix doesn’t have any right to buy additional Kioxia shares ahead of other bidders if the Japanese company is up for sale, which means SK Hynix’s invested firm may end up in the hands of its competitors.

Back in 2018, SK Hynix, the semiconductor arm of SK Group, invested about 4 trillion won ($3.55 billion) in the Japanese chipmaker through a consortium led by US private equity firm Bain Capital. Of the investment, 1.3 trillion won was used to buy convertible bonds worth a 15% stake in Kioxia.

Industry officials said SK Hynix joined the consortium as a financial investor, meaning it didn’t secure the right of first refusal (ROFR), a contractual right that gives its holder the option to buy the shares of the entity before the owner is entitled to enter into a transaction with a third party.

MAY CONVERT CB INTO STOCK TO UNLOAD STAKE

Market analysts say SK Hynix may choose to convert its CB into shares of Kioxia, and exercise its tag-along rights, also known as co-sale rights, to divest of its stake.

The Korean chipmaker may also try to acquire Kioxia in competition with Micron and Western Digital, but analysts said such a chance is low given that SK Hynix already spent heavily to buy Intel Corp.’s NAND memory business.

In October 2020, SK Hynix signed a 10.3 trillion won ($9 billion) all-cash deal to buy Intel’s NAND business that will propel the Korean chipmaker to second place in the sector’s global rankings.

SK Hynix Chief Executive Lee Seok-hee said at the time he had no intention to sell its stake in Kioxia to raise the money needed for the Intel deal.

After the US market close on Wednesday, The Wall Street Journal reported that both Western Digital and Micron Technology are considering an acquisition of Kioxia Holdings, currently the world’s No. 2 NAND player, for about $30 billion.

Kioxia, which originally was Toshiba’s memory-chip business, is controlled by a group of investors that includes Bain Capital, SK Hynix and Toshiba. The WSJ said a deal could be completed later this spring.

Last year, Kioxia had planned to go public but withdrew the plan amid volatile market conditions.

Write to Ri-Ahn Kim at knra@hankyung.com
In-Soo Nam edited this article.