Zacks_Analysts' Blog : Change of hands at Chartered? - Analyst Blog

Temasek Holdings Pte, an investment fund controlled by the Singapore government, may be considering a proposal to offload its 60%+ stake in Chartered Semiconductor Manufacturing Ltd. (CHRT). An Abu Dhabi government controlled Fund, referred to as Advanced Technology Investment Co. (ATIC), has offered SGD2.50 per share, or roughly SGD2.35 billion for the entire holding. This amounts to USD1.62 billion according to the SGD-to-USD conversion rate on June 29, 2009.

The offer is shrouded in mystery at the moment, with Chartered management appearing noncommittal and ATIC unavailable for comment. We are reminded of ATIC's earlier investment in Globalfoundries, where it joined hands with Advanced Micro Devices, Inc. (AMD) to enter the semiconductor manufacturing space for the first time. With most foundries reeling under the effect of the recession and some market consolidation underway, this is a good time for ATIC to go shopping. Further, Globalfoundries currently has a single manufacturing facility in Dresden, Germany, and an Asian interest could be a good low-cost fit for ATIC.

The advantage for Chartered appears dubious. The company recently went for capital infusion, raising approximately $300 million through a rights issue. This could help it tide over tough times. In the first quarter of 2009, the company generated 37% and 8% of its revenue from the consumer and computing end markets, respectively. Management has already stated that it is seeing strength in both these end markets, which means that roughly 45% of its business is likely to see some growth in the second half.

While profits may not be around the corner, this is certainly good news for Chartered. The only advantage that could come from ATIC would be strategic, as the company could receive some spillover business from AMD. This may not be the right time to comment on the situation, since AMD has a number of problems of its own. In any event, Chartered cannot join Globalfoundries, as this would dilute AMD's interest in the business. Chartered shares have had a great run since the beginning of the year, and are up nearly 30% year-to-date.