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April 10, 2017
martinwolf  Transaction Analysis
Foxconn Enters Bid for Toshiba with Highest Offer Yet
 
Financial Information
  • Enterprise Value                           ≃ $27 billion
Transaction Facts
  • With an opening bid of up to $27 billion, the highest known offer yet, Taiwan-based Foxconn Technology Group has entered the race to acquire Toshiba Corp.'s semiconductor business, according to The Wall Street Journal. Both companies refrained from commenting publicly. 
  • Toshiba announced plans in March to sell up to 100 percent of its highly valuable chip business in order to offset a $6.3 billion write-down from its majority-owned nuclear reactor unit, Westinghouse Electric Co., which filed for bankruptcy in the U.S last month.
  • Formally known as Hon Hai Precision Industry Co. and mainly known as a key supplier for number-one client Apple, Foxconn is the world's largest contract electronics maker. Despite suffering a 2.8 percent year-over-year decline in sales, Foxconn posted record net profit with 30 percent growth in the fourth quarter, with company heads attributing the boost in earnings to a greater variety of manufacturing jobs and expense control.
  • Foxconn took control of 100-year-old Japanese electronics company Sharp Corp. last August, when it bought two-thirds of the company for $3.5 billion. 
Entering a High-Stakes Game
  • Power Play: Offering high bids in the takeover game is far from uncharted territory for Foxconn. Founder and Chairman Terry Gou emerged victorious in the Sharp buyout by offering a high opening bid of $5.1 billion, later slashing his offer, and battling it out with a Japanese state-backed fund. At the time of the buyout, Sharp was struggling to remain competitive, losing share in display panels and mobile phone sales to competitors like Samsung and Huawei. But the takeover may have led to the turnaround it needed, as the company saw the last quarter of its fiscal year finally generating a profit. 
  • Money Talks: Though Toshiba and the Japanese government made clear their preference for a domestic buyer, the strong foreign interest may result in a shift in priorities. Beyond Foxconn, other notable offerers include Korea-based SK Hynix Inc. and U.S.-led Broadcom Ltd., both of which submitted preliminary bids at $18 billion.
  • Taking the Field: Foxconn does not currently own a major flash memory manufacturer, and the deal would ease its entrance into the market, which is projected to be $81.5 billion by 2022, at a compound annual growth rate of nearly 10 percent between 2016 and 2022. Samsung has the largest market share for NAND flash memory, with Toshiba trailing at a distant second.
  • Moving Up the Value Chain: If the Sharp acquisition demonstrated Foxconn's well-executed efforts to distinguish itself from being a mere manufacturer, then the high-stakes bid for Toshiba only further illustrates Foxconn's attempt to rapidly move up the value chain. Foxconn is on the hunt for higher margin commodities, and continues its pursuit of strategic assets with the goal of unprecedented growth. 
For more information,  click here to read the report in The Wall Street Journal.

martinwolf was not the advisor in this transaction.

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With offices in New York and the San Francisco Bay Area, martinwolf is a leading M&A Advisory focused on middle market companies in the IT Services, IT Supply Chain, IT-Enabled Business Process Outsourcing and Software as a Service (SaaS) space. Since 1997, our team has completed more than 150 transactions in over 20 countries and sold seven divisions of Fortune 500 companies. 

 

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