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Advanced Technology Investment Company, a co-owner of Globalfoundries contract maker of semiconductors, on Monday proposed to acquire Chartered Semiconductor, another contract maker of chips. The transaction will help Chartered to continue developing new process technologies and build new production capacities, whereas ATIC will be able to more efficiently compete with companies like TSMC or UMC.

“We believe that by having access to ATIC’s long-term capital and related assets, Chartered has an opportunity to bring its skills, capabilities and leadership to the next level,” said Waleed Al Mokarrab, chairman of ATIC.

The transaction is expected to close during the fourth quarter of 2009. Once the transaction is completed, ATIC will be the sole owner of Chartered. Completion of the transaction will be subject to customary conditions, such as regulatory and shareholder approvals. Each Chartered ordinary share will be acquired by ATIC for a cash consideration of S$2.68 per share. The transaction represents an equity value of approximately $1.8 billion and a total value of approximately $3.9 billion, including debt and convertible redeemable preference shares of approximately $2.2 billion as of June 30, 2009. The price represents a premium of 14.2% to its 30 trading-day volume weighted average price, 26.8% to its 90 trading-day volume weighted average price and 44.2% to its 6-month volume weighted average price on the Singapore Exchange Securities (SGX). The estimated amount of consideration for each American Depositary Share (ADSs) is $18.641. The actual amount per ADS that ADS holders will receive will depend on the applicable prevailing exchange rate, less the amount of applicable ADS depositary's fees, taxes and expenses.

Temasek Holdings, which currently owns approximately 62% of Chartered’s shares, fully supports the acquisition and has signed an irrevocable undertaking to vote in support of the transaction.

ATIC is a technology investment company wholly owned by the government of Abu Dhabi. This acquisition is its second major investment in the semiconductor industry and follows the company’s March 2009 creation of Globalfoundries together with Advanced Micro Devices.

The transaction will allow ATIC to build on the complementary platforms of Chartered and Globalfoundries with Chartered’s customer relationships and capabilities in both 8” and 12” fabrication, and Globafoundries’ advanced technology expertise, capacity profile and global footprint.

“Chartered’s board of directors recognizes the efforts of the management team and employees on the considerable progress they have made. Given the importance of scale and the need for substantial, continued capital investment, and having carefully assessed all strategic options available to Chartered, we believe this transaction provides Chartered shareholders the opportunity to realize their investment. In addition, it enables Chartered to accelerate its goal of becoming a leading player in the semiconductor industry,” said Jim Norling, chairman of the board of directors at Chartered.

For Chartered it is crucial to have a new investor willing to help the company. According to sources with knowledge of the matter, the semiconductor company has not started to invest into next-generation fabs, which means that in about a year or two from now Chartered will not be able to compete for designs that require 32nm or 28nm process technologies. Moreover, the company has lost tremendous amount of money in the last seven years. It is unclear how ATIC plans to make Chartered profitable.

Pending appropriate board approvals, Doug Grose, chief executive officer of Globalfoundries, would serve as chief exec of the combined operations, with Chia Song Hwee, CEO of Chartered, serving as chief operating officer. Chia will also spearhead the integration effort.

“Chartered and Globalfoundries will be able to draw on each other’s strengths to enable the next generation of semiconductor innovation, utilizing the value of both companies and the intellectual capital of thousands of skilled employees. Chartered and Globalfoundries are well positioned to meet the growing chip demand to come from billions of new mobile phones, cars, televisions, computers and other devices,” said Ibrahim Ajami, CEO of ATIC.

Chartered Semiconductor commands 11.3% of contract semiconductor manufacturing market. Taiwan Semiconductor Manufacturing Company and United Microelectronics Corp. command 14.1% and 49% of the market, respectively, according to iSuppli market research firm.

Tags: ATIC, Globalfoundries, Chartered, Semiconductor, Business

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