Why Intel Could Be The 'Key' To A Tsinghua-Micron Merger

Earlier this week, reports that China's Tsinghua Unigroup Ltd. made a bid for Micron Technology, Inc. MU worth $23 billion. That's a 9 percent premium to Micron's current market price, though the arbitrage opportunity was larger on Monday, before shares jumped nearly $2 per share on the rumor.

On Wednesday afternoon, the analyst who essentially predicted the bid made some further commentary on Micron.

The 'Key'

Summit Research's Srini Sundararajan, who maintains a Buy on Micron with a $34 price target, said Intel Corporation INTC is the "key" to the deal.

Why? Sundararajan said Intel's pending merger with Altera Corporation ALTR is the "lens through which" the U.S. government should view Tsinghua-Micron. "While we are circumspect about the price being offered, we are somewhat open about what will or will not happen," he added. "Checks suggest that MU is apparently taking this bid seriously and has taken on a Big Gorilla investment bank as its advisor for the deal."

So, why is Intel the key? The company is an important partner for Micron in the NAND space and it's also a 20 percent shareholder in Tsinghua. Sundararajan believes Intel is "somehow involved on all sides of this equation."

MOFCOM

More broadly, this deal is linked with other M&A activity in the semiconductor space. Sundararajan explained that China's Ministry of Commerce (MOFCOM) is a crucial player as well. It's possible the entity will stand in the way of Intel-Altera if the Department of Justice blocks Tsinghua's bid for Micron.

Sundararajan's price target of $34 on Micron is just shy of the stock's 52-week high of $36.59. Micron's "upside risk is a rapid improvement in DRAM fundamentals while downside risk would be further loss of market share or a lack of PC growth and drop in DRAM spot and contract prices," he added.