San’an Opto Weighs Options After Epistar Aquires FOREPI

Once news broke of Epistar’s acquisition of FOREPI, all eyes turned to China based chip manufacturer San’an Optoelectronics (San’an Opto), eager to see how the company would react. 

Back in 2012, San’an Opto became FOREPI’s largest shareholder after acquiring 19.77 percent stock shares. If San’an Opto decides to hold onto its stock shares after the merger, it would be equivalent to holding onto Epistar shares, bringing up the possibility of the two rivals forming an interest group. 

Some industry insiders believe the merger will have a negative impact on San’an Opto, as Epistar’s acquisition of FOREPI threatens San’an Opto’s production capacity, said an epiwafer manufacturer source that declined to be named. Previously, San’an Opto held the title for LED chip manufacturing capacity and had the most number of MOCVD equipment installed. It currently has around 160 MOCVD units installed and intends to add another 200 sets by 2018, according to LEDinside. Yet, Epistar will have a total of 430 sets after the merger, a figure impossible for San’an Opto to catch up on. This move no doubt is an effective deterrent to keep other competitors at bay.

”FOREPI essentially tricked San’an Opto,” said an LED industry analyst. “This is such a clever move on Epistar’s behalf, they just turned their largest competitor into a shareholder.”

“Epistar and San’an Opto are heavy-weights in the industry, but focus on different market segments,” the analyst pointed out. "The merger should not have a negative impact on either company in the meantime. Following the merger, the best strategy would be for each company to continue developing the market segment they are most familiar with. This strategy would be beneficial for both companies. The second option would be for San’an Opto to take the Trojan horse approach. The least favorable option would be for Epistar to take control of all company stock shares and drive out San’an Opto.”

In October 2012, San’an Opto purchased 19.77 percent in FOREPI stock to increase production capacity, patents, and market channels in the Taiwan market, said GF Securities Analyst Xu Xingjun. Even without the FOREPI investment, San’an Opto’s could still deploy production capacity, patents, and market channel strategies through other channels. Therefore, the Epistar and FOREPI merger will have little to no effect on San’an Opto, analyzed Xu. 

The merger will actually benefit San’an Opto in three ways, said Xu: 1) Even though the industry lost a major manufacturer, important clients still demand at least two to three suppliers. San’an Opto can use this to its advantage to obtain new clients. Additionally, fewer market players is beneficial towards negotiations between oligopolies. 2)After the merger, the Taiwanese LED chip industry will be monopolized by Epistar, which will hurt long-term development due to lack of competition. 3) The merger with FOREPI indicates Epistar has either scrapped or reduced plans of purchasing new MOCVD units. San’an Opto’s future MOCVD units surpass FOREPI in both costs and efficiency. The company’s competitiveness surpasses Epistar and FOREPI’s merger. 

Ping An Insurance Group also views the merger as good news. FOREPI is actually not very important to San’an Opto and is a financial burden, said Lin Zhaotian, Analyst, Ping An Insurance. San’an Opto will become Epistar’s second largest shareholder after converting stocks from FOREPI. San’an Opto has the option to either directly sell its share in FOREPI and receive investment income, or hold on to Epistar stocks. If the Taiwanese government policies  further opens up to Chinese investments, then San’an Opto has the capacity of becoming Epistar’s largest shareholder. 

Epistar’s acquisition of FOREPI is actually good news, said Wang Qing, San’an Opto’s Secretary of the Board. San’an Opto originally intended to strategically purchase FOREPI, but the plan was abandoned because of  Taiwanese government interference. Epistar’s merger with FOREPI, however, increased San’an Opto’s options. The first option is to veto the acquisition. This will force FOREPI to repurchase San’an Opto’s shares at a much lower price. Another option is for San’an Opto to approve the merger and convert shares from FOREPI to Epistar, causing the company to become Epistar’s second largest shareholder. This will enable more cooperation between San’an Opto and Epistar in the future. This merger, which is a horizontal integration in the industry, will benefit LED epiwafer industry developments in the Taiwanese and Chinese markets. 

(Author: Amber Liu, Chief Editor, LEDinside Chinahttp:// Translator: Leah Allen, Editor, LEDinside)
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