Friday, January 30, 2009

TY Chiu and Other Details of the Expected Hua Hong NEC-Grace Merger

The news on the rumored merger of Grace and Hua Hong NEC is mixed. On the one hand, the media reports one unnamed Grace official as saying "There is already no road back from integration" i.e. it's a done deal (link here). On the other hand, there are still reports of several major issues holding it up. First, the shareholding of the two companies is complex and two state-owned entities,CEC and Shanghai Municipal SASAC, are the respective controlling shareholders in Hua Hong NEC and Grace. Of course, the shareholding structure of Grace is especially opaque so Shanghai SASAC or controlled investment arms of it may not own a controlling stake in Grace. Second, Grace has a lot of assets (fabs basically) but Hua Hong NEC has higher revenue so there are bound to be fights over how to value each firm's contribution to the new entity created by the merger.

In one potentially very good piece of news, it is also rumored that TY Chiu, currently President and COO of Silterra, will return to Shanghai to help run the new firm. If true, this piece of news is most welcome as TY is an excellent manager of fabs. Of course, the question is really whether or not TY will be given the freedom to run the firm as he sees fit. On this matter, there should be plenty of doubt for those who know Hua Hong's past well. After all, TY's last brief stint at Hua Hong as COO was not a successful one given the powerful constraints placed on Chiu and the rest of David N.K. Wang's management team by Hua Hong's state owners.