Innolux Display Corp. and Chi Mei Optoelectronics Corp. agreed to merge in a NT$172 billion ($5.3 billion) transaction to create Taiwan’s largest liquid-crystal panel maker, the second deal in two months aimed at industry consolidation.

Innolux, based in Miaoli, Taiwan and the world’s second- biggest assembler of flat-screen monitors, will give one of its shares for every 2.05 shares in Tainan, Taiwan-based Chi Mei, currently Taiwan’s second-largest manufacturer of LCDs, the two companies said in a statement Saturday.
Chimei Innolux Corp. will overtake AU Optronics Corp. as the country’s largest maker of liquid-crystal displays after merger is completed in May. Saturday’s deal signals Innolux’s intention to challenge global leaders Samsung Electronics Co. and LG Display Co. in the $88 billion market for TV and computer displays after it announced last month the takeover of Taiwan’s unprofitable TPO Displays Corp.
“This ambition is very clear, we want to be a key player,” said Terry Gou, the largest shareholder in Innolux and Chairman of its affiliate Hon Hai Precision Industry Co., the world’s largest contract electronics manufacturer. “Right now in TVs, we don’t make any money from panels. We make money from connectors, and supply chain management.”
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Innolux will pay a 22 percent premium for the Chi Mei shares, according to Bloomberg calculations. Both companies will share management of the new business, to be located at Innolux’s headquarters, with Chi Mei to be the larger shareholder. Gou Saturday denied the transaction is a takeover by either party.
The deal values Chi Mei at NT$172 billion based on 7.5 million outstanding Chi Mei shares and Innolux’s closing price in Taipei Friday of NT$47, Denis Chen, spokesman for Chi Mei said Saturday. He was unable to confirm the premium calculation.
Chi Mei’s shares have climbed 74 percent this year to close at NT$18.80 Friday in Taipei, outpacing a 67 percent advance in the benchmark Taiex index. Innolux’s stock has doubled over the same period.
Chi Mei, which on Oct. 26 posted its first profit in five quarters, forecast prices will fall this quarter, joining AU Optronics and South Korea’s LG Display in signaling that a shortage which had driven up panel prices is over.
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Global flat-panel display revenue will decline 15 percent this year to $87.6 billion driven by a fall in the price of large-size LCD panels, industry researcher Display Search said Oct. 19.
The merger will combine Chi Mei’s larger capacity for making flat-panels with Innolux’s factories which focus on partial and fully assembled displays used in televisions and computer monitors. Its all-share acquisition of Hsinchu, Taiwan- based TPO will boost Innolux’s supply of small and medium-sized displays used in phones and electronics devices.
“Chi Mei has the front-end of the manufacturing process, we have the back end, so this merger will be a success,” said HC Tuan, Chairman and Chief Executive Officer of Innolux, who’ll be president and CEO of the new company. Chi Mei Chairman Frank Liao will become Chairman of Chimei Innolux, which will keep the same Chinese name as Chi Mei Opto, the companies said.
Innolux plans to sign a NT$48 billion syndicated loan Nov. 17 to fund expansion and boost working capital, two people familiar with the transaction said last week. That loan may need to be renegotiated and might be delayed, Innolux spokesman Jimmy Chiu said Saturday without providing details.
The company has no current plans to cut workers with full details of the merger yet to be completed, Tuan said Saturday. He estimated the final premium to acquire the Chi Mei shares will be 25 percent to 30 percent.
“We’d been talking a while, maybe six months, but the last stage was two weeks,” said Hon Hai’s Gou. “From Chi Mei’s perspective, they haven’t been acquired, the Chinese name hasn’t changed. Chi Mei will be the largest shareholder.”
(Source: Bloomberg)