Could Qimonda Be Acquired? (QI, MU, RMBS)

There is an interesting research note out of American Technology Research that questions whether or not Qimonda AG (NYSE: QI) could be a takeover candidate.  Since its first quarter earnings, shares are up some 50%, and AmTech believes shares have rallied on speculation the company will be acquired by a competitor.  At current prices it trades at 0.88-times book value and 1.4-times AmTech’s end of year book value estimate. 

This notes that out of the DRAM manufacturers, Micron (NYSE: MU) is the only company that would consider acquiring it.  This also notes that a non-US company would face ‘tremendous’ scrutiny from our government.  AmTech notes that this would also potentially free up Micron from its Rambus (NASDAQ: RMBS) battle over intellectual property as Qimonda has an existing license agreement with Rambus.  Another point is that would allow Micron to build market share, remove a competitor, and have scaling advantages in a DRAM upswing.  Its specialty segment commands a leading market share that would allow Micron to market itself and offset margin declines in commodity DRAM.

AmTech notes that it does not have any specific information on any transaction.  But it also notes that Qimonda likely can’t raise funds without massive dilution. 

• AmTech noted: "We believe both companies have chatted in the past about a possible deal and that Micron has scrubbed the deal as well as other memory manufacturers given its positive cash balance and need to get bigger to scale its above industry expense ratios."

AmTech noted that Qimonda’s financial situation will continue to deteriorate with cash burn rates being a key concern.  AmTech maintains its NEUTRAL rating as absent a takeover bid.  Its target price is raised to $6.00 from $5.00.  Shares of Qimonda closed at $7.34 yesterday and are down almost 3% right after the open this morning.  Its 52-week trading range is $3.51 to $17.29, and it traded even higher than that in 2006 after coming public.

a673b.bigscoots-temp.com hasn’t pondered a deal of this magnitude.  Micron has many of its own issues to fix.  With a market cap of almost $2.5 Billion, a deal of this size might take up most of the liquidity that Micron needs to survive on its current path.  We have noted on our own how the turnaround at Micron seems like it just won’t turn. We have also noted on our own how Micron needs to explore its own initiatives, or at least for units.

Jon C. Ogg
February 5, 2008