Micron to buy struggling Elpida Memory for $2.5B

Micron to also acquire controlling shares in Rexchip Electronics for $334M

Micron Technology announced today that it will acquire struggling Elpida Memory, the third largest producer of DRAM memory, for $750 million and will also take over $1.75 billion in Elpida's debt.

Tokyo-based Elpida filed for bankruptcy in February after failing to recoup investments in manufacturing facilities it had built to increase production. The oversupply of memory capacity led to a drop in DRAM prices.

With this acquisition, Boise, Idaho-based Micron will obtain one of its chief competitor's manufacturing plants in Hiroshima, Japan.

Elpida mainly manufactures DRAM for mobile devices, such as smartphones and tablets. Micron is a provider of enterprise-class DRAM for networking and servers. The company is also a major provider of NAND flash for solid state drive technology as well as a manufacturer of NOR chips, which are commonly found in mobile phones and MP3 players.

Elpida's assets include a fabrication facility for 300 millimeter DRAM located in Hiroshima and about 65% ownership interest in Rexchip Electronics Corp., which also runs a 300mm DRAM fabrication facility in Taiwan; and an assembly and test plant in Akita, Japan.

In a related transaction, Micron also announced a separate agreement with Taiwan-based Powerchip Technology Corp. to acquire the Powerchip group's 24% share of Rexchip Electronics for about $334 million.

When the deal closes this year, Micron will control approximately 89% of Rexchip's outstanding shares. The fabrication assets of Elpida and Rexchip together can produce more than 200,000 300mm wafers per month, which would represent an approximate 50% increase in Micron's manufacturing capacity, the company stated.

"We are creating the industry-leading pure-play memory company," Micron CEO Mark Durcan said in a statement. "Today's transactions will help strengthen the combined companies' market position in the memory industry through increased research and development and manufacturing scale; improved access to core memory market segments; and additional wafer capacity to balance among DRAM, NAND and NOR memory solutions for the ultimate benefit of Micron and Elpida customers."

Elpida is in Chapter 15 bankruptcy reorganization proceedings. Under the deal with Elpida, Micron will also be responsible for reimbursing $1.75 billion (less certain reorganization proceeding expenses) to Elpida's secured and unsecured creditors. Micron will make installment payments through 2019 from cash flow generated from Micron's payment for foundry services provided by Elpida, as a Micron subsidiary. As a result of these payments, all of Elpida's pre-petition debt obligations will be discharged under the corporate reorganization proceedings.

The agreement also calls for Micron to provide certain financing support for Elpida's capital expenditures, subject to certain conditions, and to maintain Elpida's operations and employees.

"Micron's sponsorship of Elpida will enable stable payment of creditor claims and help to streamline approval of the reorganization plan by the creditors and the Tokyo District Court. Joining with Micron also delivers a clear advantage for Elpida's customers, suppliers and employees," said Yukio Sakamoto, co-trustee of Elpida. "The transaction is a strong testament to the value of Elpida's technologies, products and people, and it will result in a combined organization that can best serve customers with broader memory solutions, strength and scale."

Lucas Mearian covers storage, disaster recovery and business continuity, financial services infrastructure and health care IT for Computerworld. Follow Lucas on Twitter at @lucasmearian or subscribe to Lucas's RSS feed. His e-mail address is lmearian@computerworld.com.

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Copyright © 2012 IDG Communications, Inc.

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