WT Micro Resists WPG Takeover Bid

by

WPG Holdings Co.’s bid to acquire a 30 percent stake in rival distributor WT Microelectronics Co. is meeting resistance from WT Micro executives and workers. During a late November media briefing in Taiwan, WT Micro vowed to resist the takeover.

WT Microelectronics will never relinquish control of the company’s operations but will safeguard the interests of shareholders and employees, according to the Taipei Times.  "We will fight to the last minute, whatever it takes,” WT Microelectronics Chairman Eric Cheng said.

WT Micro employees organized a "save ourselves group” that same day. More than 300 senior staff attended the media conference, voicing layoff concerns. The two distributors have overlapping geographies and customers and a merger would create redundancies. A total of 2,400 employees may be affected.

Both distributors are headquartered in Taiwan. WPG is a global distributor; WT Micro operates regionally in Southeast Asia. Electronics customers typically engage with multiple distributors to reduce their dependence on a single supply partner.

A combination of WT Microelectronics and WPG would have a 67 percent market share in Taiwan, prompting some customers to worry about pricing, Cheng said.

“Some customers are planning to withdraw orders to avoid an overconcentration of purchases with a single supplier," Cheng explained. Therefore, a merger would harm WT Microelectronics’ business and profits, which would hurt shareholders’ interests and eventually cause job losses, the Times reported.

WPG’s bid came amidst upheaval in the electronics supply chain as leading semiconductor supplier Texas Instruments Inc. announced it was dropping six distributors, including Avnet Inc., WT Micro and WPG. This is a significant shift for TI which as historically been widely distributed. The supplier also eliminated an incentive program that rewards distributors for designing TI components into OEM products.

On Nov. 12, WPG announced its plan to acquire up to 30 percent of WT Microelectronics shares for about NT$8.11 billion (US$265.8 million), saying that the purchase would only be a financial investment. WPG noted WT Micro’s profitability.

With its average return on equity of around 13.5 percent and average dividend yield of around 6 percent during the preceding two years, WT is considered a viable investment target and can lead to reasonable financial return in the long run, WPG said. “WPG expects WT to continue its stable business performance as it has demonstrated to its investors, so as to receive steady financial returns and launch opportunities for friendly dialogue with WT. WPG has no intention to influence the operations of WT except for the protection of shareholder rights and interests.”

U.S.-based distributors have found the Asia-Pacific market to be less profitable than the EU and the U.S. Component prices tend to be lower, which puts a strain on distributor profit margins. Volume demand remains robust, but margins remain low. Distributors have disengaged with customers if they are unable to make a profit.

The Asia-Pacific market has suffered under U.S. tariffs and trade embargos as customers seek supply partners that are outside of China. “With the trade war between US and China, all industries [including electronic parts and components distributors in Taiwan] face severe challenges both internally and externally,” WPG said. “In view of this, WPG has been planning on how it could utilize new technology and new methodology to create new value in the next 10 to 30 years.”

To ward off the hostile acquisition, WT Microelectronics has submitted a report to the Fair Trade Commission, saying that combining the two semiconductor distributors would generate an anti-trust concern, according to the Times. WPG has not applied for the competition watchdog’s approval.

Cheng did not go into detail about the company’s countermeasures to WPG’s takeover bid, the Times said. The management team has less than a 10 percent stake in the company, so WT Microelectronics is vulnerable to a hostile acquisition.

For now, the company does not have any plan to buy back shares and increase management’s holdings, or to shore up WT Microelectronics’ market value, Cheng said.

Judith Cheng, Chief Editor, EE Times Taiwan/Asia, contributed to this story.