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SAS announces to acquire all the semiconductor silicon wafer related business in the subsidiaries of the Japanese COVALENT MATERIALS CORPORATION in cash

The board of Sino-American Silicon (“SAS”) today approved the acquisition of the Silicon Wafer Business (the “Wafer Business”) of Covalent Materials Corporation (“Covalent Materials”) for a total consideration of 35 billion Japanese Yen (approximately NTD 13.1 billion, USD 451 million) on a debt-free basis. The board of SAS believes this acquisition will be highly complementary and (i) greatly enhances the scale and technology of its semiconductor wafer operations, (ii) makes SAS’ product portfolio more complete and (iii) offers greater efficiencies via a more fully integrated production process. As a result, the acquisition strengthens SAS’ position as a leading global provider of wafer solutions across semiconductor, solar and LED end-markets.

Certain closing conditions apply including obtaining approval from the extraordinary general meeting (“EGM”) of SAS’ shareholders and the approval of relevant regulatory authorities in Taiwan. It is anticipated that the acquisition will be completed before the end of 2011.

Covalent Materials was previously named Toshiba Ceramics, a listed subsidiary of Toshiba Japan. In 2006, Covalent Materials was spun-off via a management buy-out supported by the Carlyle Group and Unison Capital and became an independent company. Covalent Materials contains two businesses, Wafer Business (subject of this transaction) and a ceramics materials business (which will not be included in this transaction).

The Wafer Business is the 6th largest global manufacturer of semiconductor silicon wafers, with a blue-chip global client base across Japan, US, Europe and Taiwan. Its wafer products include 12 inch AT-WAFER, 8 inch Hi-WAFER/AT-WAFER, polished wafer, Epi, 6 inch and 5 inch SOI and Diffused Wafer. Covalent Materials is the pioneer and global leader in development of Hi-WAFER and has driven the development of several other specialist silicon material technologies in the sector.
These wafer products are widely used in the semiconductor industry including in products ranging from Flash, LCD-D, DRAM, MEMS, Power and IGBT, and the products have been well-recognized for their performance and quality.

The Wafer Business currently has about 1,400 staff and generated a revenue of JPY 41.0 billion, operating income of JPY 0.5 billion and depreciation and amortization of JPY 8.7 billion in the fiscal year ended 31 March, 2011. (These numbers are approximate and subject to carve-out adjustments.) The relevant asset value includes JPY2 billion of transferred cash.
SAS anticipates several clear operational and financial benefits from the transaction:

  • Enhancing its position in the global semiconductor wafer market by adding substantial scale and reach, creating a global leader in several specialty wafers segments and cementing its position as Taiwan’s clear leader
  • Deepening its global blue-chip client base, as the Wafer Business will add several tier one customers across Japan, US, Europe and Taiwan
  • Adding key wafer technologies to more fully service its target segments (including for its strategically important Power IC and discrete customer base) and offering a complete solution to clients at wafer sizes up to 300mm
  • Attractive valuation based on past results and potential forward earnings. SAS anticipates that this acquisition should be earnings and cashflow accretive in 2012, the first full year after closing, before incorporating the value of potential synergies which have been identified.

SAS’ acquisition of the Wafer Business also has a special significance in increasing the international competitiveness of Taiwan semiconductor industry. Although Taiwan currently holds an important role in semiconductor design and manufacturing, and is home to many well-known global companies such as TSMC, UMC and ASE, there are few local upstream wafer manufacturers with the production scale and technological strength comparable to international competitors.

SAS’ Group President Doris Hsu commented that “We are pleased to announce this landmark transaction and look forward to closing the deal and integrating the Wafer Business into SAS’ operations. SAS welcomes the opportunity to work with the Wafer Business’ experienced management team and the continuity they will provide. The success of SAS’ previous acquisition of American Globitech in 2008 which more than tripled its revenue and doubled its profit levels after the acquisition has given SAS confidence in its ability to invest, integrate and realize synergies.” After the acquisition, SAS shall serve the current clients with full support, even surpass CV’s existent operation mode in our corporate core value – Customer First. SAS shall satisfy clients with the severest standard in quality, delivery schedule and every business so as to create and share cooperation benefits in the future with clients. She added that “Through this acquisition SAS will enhance its position in the global semiconductor wafer industry. Besides adding quality tier-1 clients in Europe and the US, SAS will penetrate into the Japanese market which has the highest quality and precision standards and will create a truly global sales and operations infrastructure. We also intend to continue to invest in research and development of new wafer technologies, an area of strength for the Wafer Business team”.

SAS is planning to hold an EGM to seek shareholders’ approval of the acquisition and will advise further details on the timing in due course. Furthermore, it is in discussions with its principal bankers to confirm a new syndicated loan as part or full financing of this acquisition.

Citigroup Global Markets acted as SAS’ exclusive financial advisor in this transaction and Citibank (Taiwan) Limited acted as the underwriter for the acquisition financing.