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[Exclusive] Deals

SK Hynix push for takeover of Key Foundry to boost foundry production

By May 17, 2021 (Gmt+09:00)

SK Hynix push for takeover of Key Foundry to boost foundry production

SK Hynix Inc. is taking the first steps to take over South Korea-based Key Foundry, a move in line with recent remarks from Park Jung-ho, the SK Hynix vice-chairman, who recently shared plans to expand the company's foundry production capacity

According to the investment banking industry on May 16, SK Hynix has reached out to the new foundry firm to begin talks on the potential acquisition. Key Foundry has also hired advisors to oversee the process.

Key Foundry was established in September last year after Magnachip Semiconductor Corp. sold its Cheongju-based foundry facility for 510 billion won ($450 million) to a consortium led by domestic PE firms Alchemist Partners and Gravity Private Equity in March 2020.

At the time, SK Hynix, the world’s second-largest memory chipmaker, also participated in the deal indirectly by investing around 207.3 billion won in the PE fund established by the consortium, with the Korean Federation of Community Credit Cooperatives becoming the largest investor holding a 50 percent stake plus one share.

SK Hynix is expected to inject over an additional 400 billion won to take over the Magnachip spin-off considering the required rate of return from its investors.

SK HYNIX JOSTLES TO HOLD POSITION

According to the semiconductor industry, SK Hynix's decision to take over Key Foundry came sooner than expected, likely on account of its foundry business settling in in China alongside concerns of increased bidders next year given the growing shortage of 8-inch foundry facilities.

Currently, SK Hynix operates its foundry business through its subsidiary SK Hynix System IC, which recently relocated its 8-inch wafer facilities from the Cheongju plant in Korea to Wuxi, China. The foundry produces around 100,000 wafers monthly.

Meanwhile, Key Foundry's production capacity is around 82,000 wafers monthly, making it an attractive asset for SK Hynix in its foundry business expansion plans. 

Also, SK Hynix holds an advantageous position in terms of post-merger integration compared to bidders abroad since Key Foundry shares some resources, such as industrial water and power, with SK Hynix’s Cheongju-based factory.

However, the sell-side and the buy-side are expected to lock horns in negotiations. As the sell-side needs to maximize the sale price, it is uncertain if they will agree to SK Hynix's takeover bid. Instead, they may opt for a public deal.

Meanwhile, the fact that SK Hynix did not mention Key Foundry when outlining its M&A opportunities and foundry expansion has been interpreted as a strategic move by SK Hynix to garner an edge in takeover negotiations.

Write to Jun-ho Cha and Jung-soo Hwang at chacha@hankyung.com

Danbee Lee edited this article.

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