Diodes Incorporated’s $428 million acquisition of Lite-On Semiconductor approved by Chinese regulators

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Diodes Incorporated's acquisition of Lite-On Semiconductor approved by Chinese regulators.
Image: Diodes Incorporated

Diodes Incorporated announced China’s State Administration for Market Regulation approved its acquisition of Lite-On Semiconductor Corporation (LSC). The Plano, Texas headquartered company revealed it would buy the Taiwan-based LSC for $428 million in August 2019. Initially, both firms expected the deal to close in April 2020.

Having passed government review, Diodes now expects its purchase to close this November.

Why the Diodes-LSC Merger Has Taken So Long

Because of the ongoing U.S. China trade war, recent global technology mergers and acquisitions have been slower than usual. However, Diodes’ purchase of LSC has gone five months over schedule because of the complexity of the deal.

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In January, the American electronic components manufacturer provided an update that shed some light on the situation.

For one thing, LSC needed to divest itself of a 16.5 percent ownership stake in a Chinese firm called On-Bright Electronics Incorporated before regulators would evaluate the deal. However, On-Bright had begun merger proceedings with Euporie Investment Holdings Limited, a subsidiary of Illinois-based tech incubator Orthosie. Ultimately, LSC agreed to sell its shares of On-Bright to Orthosie once its purchase closes.

In addition, Diodes hoped Chinese and Taiwanese antitrust authorities would review its acquisition under their “simplified” review procedure. But officials from both regions opted to conduct the more comprehensive “standard” appraisals of the transaction.

Fortunately, Chinese and Taiwanese authorities approved the deal, and no other national regulator has raised any objections. So, LSC moved to delist itself from the Taiwanese Stock Exchange, and Diodes should exit 2020 with a shiny new subsidiary.

Why Diodes is Buying LSC

Diodes made plans to acquire LSC to improve its profitability and safeguard its global operations.

In what is now a very old press release, the Texas chipmaker explained snapping up LSC’s contracts and products would increase its annual revenue by $2.5 billion. Moreover, the corporation predicted $1 billion of the intake generated by its proposed subsidiary’s would be profit.

Diodes also noted owning LSC’s portfolio would help it capture a bigger share of the $1.16 billion U.S. contact image sensor market.

Buying LSC will also give Diodes a measure of protection against headwinds generated by the Sino-American trade war. Currently, the U.S. firm maintains all but four of its production facilities in the Chinese mainland. But LSC has multiple fabrication facilities in Taiwan. Therefore, the two superpowers should not saddle the subsidiary’s goods with tariffs.

Although Diodes’ purchase of LSC has taken much longer than expected, the deal’s benefits more than justify its complications.

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