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Epistar of Taiwan Acquires Struggling TSMC SSL

2015/01/28 | By Ken Liu

pistar Corp., a major manufacturer and solutions provider for LED epitaxial wafers and dies based in Taiwan, announced the acquisition of the shares held by Taiwan Semiconductor Manufacturing Co. (TSMC) and its subsidiary, TSMC Guang Neng Investment Ltd., in LED maker TSMC SSL for NT$825 million (US$25.78 million).

The transaction, approved by the board of directors of Epistar and TSMC, will see Epistar hold 94% stake in TSMC SSL, which will be run by Epistar and TSMC SSL's current team.

TSMC attributes the said sale to Epistar to financial, patent and distribution channel issues.

According to TSMC, TSMC SSL has struggled to achieve profitability due to oversupply caused by massive expansion of the LED industry in the past several years.

Also, TSMC SSL, a newcomer and despite having developed high-efficiency LED lighting products using an innovative phosphor-on-die (PoD) chip-scale packaging technology, has been mired in difficulties related to patents and establishing sales channels.

Epistar, in contrast, has won patents recognized by major industry players, cross-licensed with Philips and Toyoda Gosei, and established a wide network of global sales channels.

The latest financial report from TSMC shows the LED subsidiary with cumulative losses of around NT$4.75 billion (US$148.43 million) since its  establishment in 2011, with net value decreasing to only NT$1.2 per share, coupled with its solar-energy subsidiary's losses exceeding NT$7.7 billion (US$240.62 million).

Steven Tso, TSMC SSL chairman, says the deal  creates a triple-win scenario for TSMC SSL, Epistar and TSMC SSL's present team in that  Epistar's operations can take off with redoubled strength, the development of the LED industry will accelerate, and TSMC SSL's shareholders and employees will benefit.

Currently TSMC SSL has 400 employees, generating revenue less than NT$100 million (US$3.12 million) with only five metal-organic chemical-vapor deposition (MOCVD) chambers in 2014.

TSMC's acting spokesperson, Elizabeth Sun, conceded that it is a painful decision for TSMC to sell its LED subsidiary, but the company will keep  its solar-energy subsidiary, easing investor fears that the world's No.1 pure foundry would also leave the solar-energy industry.

Epistar will buy TSMC SSL shares for NT$1.46 each, a premium of around 20%, marking another acquisition after taking over Huga Optotech Inc. and Formosa Epitaxy Inc.

Epistar chairman, B.J. Lee, notes that TSMC SSL's capacity may be far smaller than Epistar's, but his company can bring in new mindsets, talents and systems from other industries to spark new ideas and strengthen future operations by working with TSMC.

Lee says his company had decided to invest in TSMC SSL only one month after acquiring FOREPI in late 2014 to secure enough capacity and intellectual power needed for future growth, also estimating the LED lighting market to grow exponentially between 2014 and 2017.

Epistar executives have confirmed reports that  TSMC will purchase post-acquisition 1 percent of the company's stock for around NT$600 million (US$18.75 million) through a new share subscription.

In 2014 Epistar had consolidated revenue of NT$27.71 billion (US$866.03 million), surging 24.5% year on year. The company projects revenue to increase 20% or so to NT$34 billion (US$1.06 billion) in 2015 due to strong demand in LED-lighting and LED-backlight markets.

(KL)