TAICHUNG, Taiwan, Sept. 28, 2015 /PRNewswire/ --
Siliconware Precision Industries Co., Ltd.
On September 15, 2015, Siliconware Precision Industries Co., Ltd. (NASDAQ: SPIL, Taiwan Stock Exchange: 2325.TW) ("we", "SPIL" or "the Company") ( signed a Strategic Alliance and Share Exchange Agreement with Hon Hai Precision Industry Co., Ltd. (Taiwan Stock Exchange: 2317.TW, "Hon Hai"), whereby the parties will form a strategic alliance through the exchange of shares in accordance with Article 156, Paragraph 8 of the Republic of China Company Act. The alliance will allow the Company to pursue business opportunities that will create value for shareholders.
At this shareholder meeting, we seek shareholder approval of two items:
1. Amendments to the Company's "Articles of Incorporation" to increase authorized capital.
2. Amendments to the Company's "Procedures for Acquisition and Disposal of Assets."
These amendments are necessary in order for the Company to fully execute the announced share exchange with Hon Hai.
Background of the Strategic Alliance with Hon Hai
SPIL is the world's third largest IC assembly and testing house, with wire bonding, flip-chip, wafer level packaging, bumping, multichip package and high-level assembly and testing technology.
The Company has a long-standing history with Hon Hai and has been seeking cooperation with Electronics Manufacturing Services ("EMS") partners since 2010:
-- In 1998 SPIL and Hon Hai invested in Siliconware Corporation, a former testing division of SPIL, and Hon Hai Chairman Terry Guo served as a Board Director of Siliconware Corporation. Siliconware Corporation was merged into SPIL in 2000.
-- In 1999, SPIL and Hon Hai launched a joint venture called APTOS in California.
-- In 2010, SPIL started to explore potential business expansion by leveraging the experience of a group of ex-Universal Scientific Industrial Co., Ltd. ("ex-USI") specialists.
-- In 2014, SPIL management proactively initiated strategic cooperation discussions with ShunSin (6451.TT), a subsidiary of Hon Hai, on System in Package ("SiP") business.
-- In early 2015, SPIL had also explored with leading EMS manufacturers on possible business cooperation.
Hon Hai is the world's largest company in electronics contract manufacturing. They have always committed themselves to being a one-stop high technology service provider to system brand customers. Hon Hai stands as the global leader in precision tooling, components, equipment process design, manufacturing, assembly, sales, etc. The development of microchip related integration services is also one of Hon Hai conglomerate's key strategies, and aligns well with SPIL.
Strategic Alliance Benefits
The Hon Hai and SPIL strategic alliance will be the strongest combination worldwide.
SPIL and Hon Hai will create synergies by realizing additional growth from new market opportunities and improving cost efficiencies operationally. The additional revenue and profit growth, along with the cost savings, would translate into stronger financial results that maximize shareholder return. SPIL believes the value to shareholders derived from the strategic alliance will far exceed the short-term dilution.
SiP Market Opportunities:
Upon the formation of such a strategic alliance, SPIL and Hon Hai will immediately commence projects to jointly develop SiP capabilities to tap into the fast-growing SiP market. The SiP market is expected to become a US$40 billion market in 2018. This strategic alliance is expected to provide the Company significant revenue and profit contribution starting in 2017, and the Company plans it could capture a significant share of the SiP market in 2018.
IC Packaging Partnership:
SPIL will also become the preferred IC packaging partner for Hon Hai's ODM IC. By utilizing SPIL's existing IC packaging and testing technology and capacity, SPIL can meet Hon Hai's demands without significant capex required. The Company expects to recognize revenue and profit contribution starting in 2017.
Harvesting the Growth Opportunities in Emerging Markets:
SPIL and Hon Hai will jointly collaborate to penetrate the smartphone market in emerging countries, which are expected to drive the future growth of smartphone products as adoption increases. Through this alliance, SPIL and Hon Hai will also have the capability to provide complete IC packaging and testing and EMS services locally in important growth markets such as India. India's smartphone market is expected to support substantial growth as adoption of smartphone increases. Jointly, SPIL and Hon Hai will be in a great position to penetrate India's smartphone market by leveraging their enhanced competitive position.
Sharing of Relevant Technologies and Processes:
Furthermore, in order to facilitate joint projects, SPIL will provide Hon Hai with the following advanced technology and process: Embedded Die Fan-Out, Die on Capacitor, two-side/compression molding, Integrated Passive Devices ("IPD") on Die (with bumping TECH), embedded wire inductor, partition Electromagnetic interference ("EMI"), and antenna in SiP. In return, Hon Hai will provide to SPIL: Surface Mount Technology ("SMT") capability for SiP module assembly, component buying power, flex print circuit board capability, system design capability, logistics management, automation, and strong system customer base.
Cost Efficiencies and Process Improvements:
The alliance will also enable SPIL to reduce cost and improve efficiency by leveraging Hon Hai's expertise. Hon Hai is the world leader in automation and assembly, and its precision mold, machinery manufacturing, and automation technology will increase SPIL's yield and enhance its competitiveness. SPIL and Hon Hai plan to co-develop Application Specific Integrated Circuits ("ASIC") chip, assembly, modules and others in order to accelerate the time-to-market, increase product performance, and lower costs. SPIL could also cooperate with Hon Hai's subsidiaries such as with Zhen Ding Technology Holding on embedded substrate projects and panel-size fan-out wafer level Chip Scale Package ("CSP"), which could yield further synergies.
Wearables and Smartphones:
SPIL is skilled in miniaturization and light weight IC, while Hon Hai is skilled in SMT/EMS and has significant purchasing power. The strategic alliance will lead to a one-stop-shop for our customers and Hon Hai's customers. The alliance will also enable the parties to adopt advanced IC assembly technology, which will put SPIL and Hon Hai in a great position to meet the demand for smaller form factors, energy savings, and higher performance standards for products such as smart phones, and wearables, both of which require minimizing size, weight, and improved thermal dissipation.
Internet of Things ("IoT"):
Both parties will also jointly develop system integration solutions for the IoT, and be ready for the Next Big Thing. From wearables, smart homes and factories to smart cities, the IoT ecosystem that requires various ICs will gradually be realized in the next few years. Advanced packaging technology will become one of the key factors to effect this system integration as miniaturization progresses in application processors, communication modules, power management IC, fingerprint IC, and more. Hon Hai is the most capable solution provider for IoT, and SPIL's own capabilities will further strengthen system integration and provide strong product support.
Share Exchange Arrangement
Under the terms of the strategic alliance with Hon Hai, SPIL will issue 840,600,000 shares to Hon Hai, and Hon Hai will issue 359,230,769 shares to SPIL at the share exchange ratio of 2.34 SPIL shares for every Hon Hai share. After the exchange, Hon Hai will hold 21.2% shares of SPIL, post share issue; and SPIL will hold 2.2% shares of Hon Hai's enlarged shares.
In reaching the agreement with Hon Hai, SPIL has evaluated the share exchange ratio using the Income Basis Method, the Asset Basis Method, and the Market Basis Method. SPIL then selected the one that was most beneficial to SPIL shareholders. As this is a share exchange for the purpose of creating long-term strategic partnership, the exchange ratio was agreed to be on equal economic terms for both parties without offering premium or discount to either party.
- Income Basis Method: The Company evaluated both parties' earnings contribution. The average earnings per share in last two years for SPIL and Hon Hai were NT$2.83 and NT$8.06, respectively. Under this method, the share exchange ratio for SPIL and Hon Hai is 2.85:1.
- Asset Basis Method: For Asset Basis Method, the average net asset value per share for the past two years was used for assessment of the share exchange ratio. The average net asset value per share for SPIL and Hon Hai were NT$21.60 and NT$63.98, respectively. Under this calculation, the share exchange rate for SPIL and Hon Hai is 2.96:1.
- Market Basis Method: The range of the companies' average market value of their shares for the last 10, 30, and 60 business days prior to August 22, 2015 was used. Under this method, the share exchange ratio is in a range of 2.34:1 to 2.54:1.
Based on the above methodologies, the fair exchange ratio was assessed to be in a range of 2.34:1 to 2.96:1. SPIL chose the lowest exchange ratio of 2.34 SPIL shares per Hon Hai share, and Hon Hai agreed to the same. The exchange ratio 2.34 implies that SPIL share price of NT$40.03 per share and Hon Hai share price of NT$93.49 per share.
For Hon Hai to be motivated to collectively achieve stronger financial results with SPIL, it needs to obtain more than 20% of SPIL shares in order to account the shareholding as equity-method investment and recognize SPIL's profit or loss in Hon Hai's financial statement. This arrangement will align the business interests of both parties, and SPIL will also share the upside of Hon Hai's operations and share price performance.
In order to achieve maximum synergy from the alliance with Hon Hai, the Company is proposing two (2) resolutions for approval at the Extraordinary General Meeting.
1. Amendment to Articles of Incorporation to increase authorized capital
SPIL currently has 3,116.3 million shares outstanding, and the Company is proposing to increase authorized shares from 3,600.0 million shares to 5,000.0 million shares.
The Company plans to issue 840.6 million new shares to Hon Hai for the share exchange, and it also needs to reserve headroom of 245.8 million shares for the potential conversion of the US$400 million convertible bonds (or "CB") issued in 2014. The pro-forma number of shares will increase from 3,116.3 million shares to 4,202.7millions post Hon Hai share exchange and full CB conversion.
Current outstanding shares as of Sep 24, 2015
+ New Shares to be issued for share exchange with Hon Hai
+ Headroom reserved for the potential conversion of US$400mm CB due 2019
Pro-forma outstanding shares post Hon Hai share exchange and full CB conversion
+ Headroom for potential operational and funding needs
Proposed authorized shares
The Company also requires sufficient headroom for potential operational and funding needs, and thus proposes to increase the authorized shares to 5,000.0 million. However, SPIL does not have immediate plans to issues new shares except for the announced share exchange with Hon Hai, and future new share issuance plans will be subject to shareholder approval according to relevant regulations. Under the ROC Company Act, shareholder approval prior to the issuance of shares in connection with the acquisition of the assets of another company is generally required where the transaction constitutes a "material transaction" under Article 185 of the ROC Company Act. In addition, the ROC Enterprise Mergers and Acquisitions Act provides that shareholder approval is required for most of the merger and acquisition transactions, such as merger, spin-off, general assumption of another company's business or assets, and share-for-share swap for 100% of another company's outstanding shares.
2. Amendment to the Procedures for Acquisition and Disposal of Assets
SPIL is proposing to increase the limit on the investments in a single security from 20% of the Company's net worth to 60%. This amendment is to allow the share exchange investment in Hon Hai.
Through the share exchange with Hon Hai, SPIL plans to obtain 359.2 million Hon Hai shares. Based on Hon Hai's 52-week share price high-low range of NT$81.60~NT$100.00 per share (as of September 25, 2015), SPIL's investments in Hon Hai would amount to NT$29,313.2 million to NT$35,923.1 million. With SPIL's latest net worth of NT$67,922.5 million as of June 30th, 2015, the intended investments in Hon Hai would translate into 43.2% to 52.9% of the Company's net worth.
Hon Hai 52-week high share price NT$100.001
Hon Hai 52-week low share price NT$81.601
1 As of September 25, 2015
2 % of SPIL's latest net worth of NT$67,922.5 million as of June 30th, 2015
As the final share price will be determined on the date of actual share exchange, the proposed amendment allows the Company to accommodate the share exchange and account for future share price movements. SPIL has no intention of further increasing its equity relationship with Hon Hai or any other third party at this time.
The above proposed amendments are intended to accommodate the announced share exchange with Hon Hai and allow headroom for potential operational and funding needs to support business growth. The approval of these resolutions is vital to the formation of the strategic alliance with Hon Hai and long-term shareholder value creation. Other than the announced Hon Hai share exchange, the Company does not have any immediate plan to issue new shares or increase the investment in any other third-party.
SPIL will continue to comply with the high standards of corporate governance as our history clearly demonstrates. The company has maintained a strong track record of good corporate governance, and ranks among the top 5% at the first Corporate Governance Evaluation held by the Taiwan Stock Exchange Corporation in 2015. The Company does not foresee instances of share issuances to increase investment in a company without strategic benefits or most importantly creating value for existing shareholders.
Potential Risk from ASE
It is imperative for SPIL to proceed with the share exchange with Hon Hai at this juncture given that ASE has succeeded in acquiring 24.99% stake. While ASE has stated that the tender offer represents a purely financial investment and that it has no plans to intervene in SPIL's businesses, ASE's interest may not be fully aligned with those of other shareholders given its competitive position. Its 24.99% stake could grant ASE significant leverage and influence over the Company. ASE could potentially block any future strategic transaction, and have the voting power required to effectively veto such issues as the sale of the Company or issuance of additional shares. It could also pressure to replace board members and force a change in strategy upon the Company. Considering ASE's conflicting interest, it may choose to utilize its influence for its own benefit, which could be to the significant detriment of SPIL shareholders. This creates substantial uncertainties over the Company's future developments and strategies.
In comparison, the strategic alliance and share exchange with Hon Hai provides shareholders with a clear vision and strategy. We urge shareholders to support the alliance with the global leader in electronics contract manufacturing and pursue vertical integration and other business synergies.
Our Long-term Commitment to Shareholders
SPIL has consistently delivered strong financial results as evidenced in our track record. The Company has maintained stable growth with improving profitability and achieved record high revenue and net income in 2014. Gross margin improved significantly from 15.4% in 2010 to 25.3% in 2014, and net margin increased from 8.8% in 2010 to 14.1% in 2014. SPIL also ranked first in profitability amongst the top three IC assembly and testing players in 2014. The Company also has strived to maximize shareholder value by maintaining a high dividend payout ratio. Through solid execution capability to generate consistent cash flow, SPIL maintained a high dividend payout ratio that averaged 89.3% from 2010 to 2014. Going forward, the Company's main objective will continue to be maximizing shareholder value.
SPIL strongly believes the alliance with Hon Hai will be a key driver for revenue and profit growth, and the Company will also aim to maintain a growing dividend payout policy in line with our historical track record. From this share exchange, SPIL will generate approximately NT$25 billion in capital reserve. This additional capital reserve will allow flexibility, subject to shareholder approval, for future dividend payouts that minimize potential short-term dilution and ensure shareholders return.
This strategic alliance will create substantial value for shareholders through opportunities in new high-growth markets. The board of directors asks that you vote in favor of both Items 1 and 2 to cement our long-term strategic alliance with Hon Hai.
For more information, you can find our communication slides: http://photos.prnasia.com/prnk/20150928/8521506371, or please contact our Investor Relations Director Janet Chen at email@example.com or +886-3-5795678#3675 or our Spokesperson Byron Chiang at firstname.lastname@example.org or +886-3-5795678#3671 or our proxy solicitor Alliance Advisors at email@example.com or +1-973-873-7717.
Very truly yours,
Bough Lin, Chairman
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SOURCE Siliconware Precision Industries Co., Ltd.