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March 2, 2007 3:12 am

Temasek offers S$2.4bn for STATS ChipPac

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Temasek, the Singapore state investment company, on Thursday made a surprise S$2.4bn bid to take private its listed affiliate STATS ChipPac by buying 64 per cent of the shares in the microchip packager it does not already own.

Analysts said the move could be prelude to selling STATS or merging it with a rival.

Private equity groups have recently shown interest in the chip packaging sector. Carlyle Group led a private equity consortium to bid $5.5bn for Taiwan's Advanced Semiconductor Engineering, the market leader, in November, although a deal has not been concluded.

But some analysts believe that Temasek may have decided that STATS, the world’s fourth largest microchip packager, was undervalued. By taking the company private now, Temasek coup reap any financial benefits later should there be an improvement in the semiconductor sector over the next few years. The STATS share price has fallen sharply from its high of S$10.90 in March 2000.

The strategy would be similar to the one behind Temasek’s 2004 bid to take private Neptune Orient Lines (NOL) ahead of an expected rise in global shipping rates. Although Temasek was only able to increase its NOL stake to 69 per cent from 30 per cent, it was rewarded a year later with large dividend payments by NOL.

Simon Israel, Temasek's second executive director, told the Financial Times last year that STATS might be one of assets that the group was willing to sell due to its poor performance in recent years,. But the unit has since recovered to report record earnings of $77m for 2006 on sales of $1.6bn.

Edwin Goh, an analyst at ABN Amro in Singapore, said: “STATS has cleaned up its balance sheet and has largely completed its capital expenditure plans, so it is primed to start paying dividends. Temasek may have decided to take advantage of that while looking for a buyer for STATS." said

Some analysts believe that Temasek may have to increase its offer price to shareholders, which include Fidelity Management & Research and Wells Capital Managment.

Mr Goh said that Temasek's bid was 30 per cent less than Carlyle's valuation of ASE and that shareholders were unlikely to accept the bid just as STATS earnings were improving after several years of losses.

Goldman Sachs is advising Temasek.

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