Hynix Rejects $2.8-Billion Acquisition Bid by Micron

A bid by Micron Technology Inc. to become the world’s largest computer memory maker fell apart Tuesday as the board of struggling Hynix Semiconductor Inc. rejected the $2.8-billion deal.

Hynix Chief Executive Park Chong Sup, who negotiated the merger 11 days earlier, resigned in protest, and analysts predicted tough times for the company, with $6 billion in debt and an annual loss of nearly $4 billion.

The deal would have further consolidated an industry slammed by ruthless price wars and tepid demand from computer manufacturers, factors that shrank the global memory chip market from $29 billion in 2000 to $10 billion last year.

Micron’s acquisition was backed by creditors but opposed by Hynix employees who feared getting fired and by small shareholders unlikely to recover their losses.

Facing that pressure, Hynix directors said the South Korean company would rather remain independent and wait for a rise in memory prices.

But news of the failed deal sent memory chip wholesale prices down 10 cents on average in Asia to less than $3 for a standard 128-megabyte chip.

Buyers had expected a merger to reduce chip supply and lift prices. The spot price for the 128-MB chip rose from a low of $1 in November to $5 in March before falling back to about $3 in recent weeks.

Analysts said Hynix will have a tough time regaining its footing.

“They’re fairly crippled from a financial perspective,” said Dan Scovel, a semiconductor analyst for Needham & Co. in New York. “Unless there’s a huge capital infusion on the order of several billions of dollars, it seems unlikely that they would remain viable for longer than a year.”

Scovel said Hynix’s continued presence, however brief, bodes ill for the overall industry.

“Now you have a crippled supplier frantic to raise money any way it can, and that’s likely to mean slashing prices below cost,” he said.

Micron declined to divulge its next move.

“It’s disappointing that the Hynix board of directors and their creditors couldn’t come to an agreement,” Micron spokesman Sean Mahoney said. “We’re evaluating the situation to determine an appropriate course of action.”

A sale still may be possible, analysts said. Creditors, most of whom back the deal, collectively hold $2.3 billion in bonds that can be converted to stock and can theoretically wrest control from the board and approve a sale.

The deal called for Micron to pay $200 million in cash plus 108 million shares of its stock, worth $2.6billion based on Tuesday’s share price, for six factories and a 15% stake in Hynix’s remaining chip business.

“Generally speaking, they don’t want to sell out unless they have to,” said Jeremy Lopez, an analyst with Morningstar Inc. in Chicago. “But with memory prices starting to tick up again, they may be thinking that they don’t need to throw in the towel.”

Shares of Micron fell $2.75 to $23.70 Tuesday on the New York Stock Exchange. Hynix stock rose 6% on the Korean Stock Exchange.