Micron May Be Most Likely Target For China's Tsinghua

• In a report issued Tuesday, Macquarie analysts Deepon Nag and Matthew Prisco took a look into Micron Technology, Inc. MU.
• The experts reiterated an Outperform rating and $30 price target on the shares.
• However, the research note was focused on the probability of China buying a stake in the company. So, let’s take a look at the issue.

On Monday morning, Tsinghua Unigroup’s Chairman, Zhao Weiguo, told Reuters that it was engaged in talks with a semiconductor company in the U.S., and that a deal could be reached before the end of the month.

Following the publication of this article, Macquarie analysts weighed in on the issue, noting that, in light of China’s most recent moves in the memory space, they think Micron is “the most likely target for Tsinghua.”

Tsinghua’s Zhao explicated that a majority stake was not likely because of regulatory concerns. However, the research firm pointed out that “its recent 15% equity stake in Western Digital Corp WDC at a 33% premium provides a template for a potential deal.”

As stated in previous reports, the experts said they “believe that ‘building’ and ‘buying’ semiconductor assets is a difficult proposition for China, and expect more ‘investing’ and ‘coercion’ type deals going forward.”

The report then went into the analysis of the impact of Zhao’s declarations.

For starters, they highlighted that China is very interested in semiconductors, and especially in memory, as it intends to become a relevant player in the global market. Thus, they believe “memory is a natural target, and note that much of China’s recent moves in semiconductors have involved memory (ISSI, MU, 3D NAND facilities for INTC and Samsung).”

They also pointed out that, being the 4^th largest semiconductor company in the world, Micron makes a good acquisition.

The report continued to assure that China’s playbook “involves investing/coercing in semi market,” and that, if Tsinghua took a 15 percent stake in Micron, the company would receive about $3.3 billion.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.