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Commentary: WPG-Yosun merger a win-win deal
Meiling Chen, DIGITIMES, Taipei [Monday 22 March 2010]

WPG Holdings and Yosun Industrial, Asia's largest and second largest IC distributors, announced their merger at a right time, which is expected to consolidate operations of both companies and help WPG stabilize its leading position in the Asia market.

Yosun has been mulling the possibility of consolidation for a while, and the merger with WPG is taking place when the DRAM industry is recovering. On March 20, the two companies announced to merge through a 100% share swap, and the swap price was set at a 20% premium over Yosun's closing price of NT$40 (US$1.26) on the Taiwan Stock Exchange (TSE) on March 19. Each share of Yosun will be exchanged for 0.902 shares of WPG, whose stock closed at NT$53.2 on March 19.

The merger would not have been wise if it had taken place in 2009, a dismal year for the DRAM market amid the global recession. But Yosun, a distributor of Samsung Electronics' DRAM chips, has now chosen to be acquired when the DRAM market is stable enough to solicit a better purchase offer from WPG.

Unlike other acquisitions in the IT industry (usually with the acquired company eliminated and many of its staff laid off), Yosun will become a member of the WPG group, keep its operations and increase benefits for both its shareholders and employees.

WPG has conducted acquisitions in a similar model since 2005. Arrow Electronics, Avnet Electronics Marketing and Synnex Technology reportedly also came knocking on Yosun's door, but Yosun chose WPG because of the attraction of operation under a holding firm.

Yosun's subsidiary Siltrontech Electronics has been named to be the next merger target of WPG. WPG has not denied the market speculation but declined to comment on individual companies.

WPG was the first in the IT industry to use the concept of a holding firm for acquisitions. Its subsidiaries include World Peace Industrial, Silicon Application Corporation (SAC), RichPower, Pernase Enterprise and Asian Information Technology (AIT). The advantage of WPG's acquisition strategy is that no company will be eliminated, meaning neither the acquiring nor the acquired companies would lose customers while partnerships would be tightened with the number of clients increasing as a whole for the group.

WPG is willing to pay a good price for the Yosun deal because of the positive outlook for the DRAM market. After Yosun joins the WPG group, WPG will embrace product lines from first-tier vendors Samsung, Intel, Micron Technology, Hynix Semiconductor, Toshiba, STMicroelectronics and Texas Instruments (TI), and the number of its total product lines will increase to 230. Acer, an important customer of Yosun and Samsung, is also expected to be added to the WPG group's customer list. With so many resources and support, WPG's only concern in the future will be how it can fairly handle each of its clients.

WPG's capital will increase to NT$12.2 billion, and its market share in Asia will reach more than 30%, widening its gap with Arrow and Avnet in Asia after the acquisition completes. The Asia market accounts for 60% of the global semiconductor market, and the share is expected to reach 66% in 2010.

The WPG-Yosun merger will definitely bring pressure on local rivals including WT Microelectronics, Supreme Electronics and GMI Technology. As competition gets fiercer, some industry players believe smaller IC distributors in Taiwan may eventually also seek to come under the WPG banner, or form strategic alliances with foreign companies such as Arrow or Avnet to defend their territories.

The number of Taiwan-based IC distributors has reduced from more than 100 to 20 over the past several years. And it seems consolidation in the sector will not end at the WPG-Yosun deal.

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