Shares in Siltronic jumped on Monday after the German silicon wafer maker said on Sunday it was in advanced talks to be bought by Taiwan’s GlobalWafers in a 3.75-billion-euro ($4.5 billion) deal.

The stock rose by nearly 10% to trade just shy of the offer of 125 euros per share that Siltronic said it expected GlobalWafers to make, describing the proposed valuation as “appropriate and attractive”.

That represents a premium of 48% to the undisturbed average market price for Siltronic over the previous 90 days - a gap that was eroded in advance of the deal announcement by a strong share price outperformance.

Siltronic was advised on the deal by Credit Suisse, two sources familiar with the matter said on condition of anonymity, in negotiations on the transaction that extended over a number of months.

Siltronic declined public comment beyond its joint announcement with GlobalWafers. Credit Suisse had no immediate comment.

The Swiss bank’s technology analyst, Achal Sultania, in a research note last Friday, raised his price target on Siltronic to 124 euros - 1 euro below the expected offer price - and reiterated his ‘outperform’ rating.

Sultania’s note cited improved price prospects at Siltronic, saying an an oversupply of silicon wafers would dissipate over the next 9-12 months.

He did not mention the possibility of a takeover.

Germany’s financial market regulator, Bafin, said it would conduct a routine examination of share price moves in Siltronic before Sunday’s announcement. “This is standard practice,” Bafin said.

Citi analyst Amit Harchandani said the cash offer reasonably reflected Siltronic’s long-term fundamentals but “some on the buy side will be disappointed”.

The market for silicon wafers - the pizza-sized discs on which computer chips are etched - is both competitive and cyclical, putting pressure on smaller players to merge to achieve economies of scale.

The combined companies would be number two in the world market for 300-millimeter wafers, behind Japan’s Shin-Etsu. GlobalWafers is currently number four and Siltronic number five.

The Munich-based firm said it expected Wacker Chemie, which owns a 30.8% stake, to agree to tender its shares at the offer price. The parties expect to sign a binding merger agreement in the second week of December.

Siltronic expects to propose a dividend of 2 euros per share for its fiscal year 2020 that will be paid prior to closing.

Nomura is advising GlobalWafers on the transaction, two people with direct knowledge said.

($1 = 0.8365 euros)

By: DocMemory
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