Unimpressed by Micron\'s Offer, Elpida Bondholders Offer Alternative

Bondholders of Elpida Memory, the Japanese chipmaker, are not giving up without a fight.

On Tuesday, the group - Linden Advisors, LIM Advisors, Owl Creek Asset Management and Taconic Capital Advisors - reiterated its opposition to Micron Technology‘s $2.5 billion offer for Elpida. The group provided an alternative plan, which includes a loan of 30 billion yen, or $380 million, to the company to help during the restructuring period. The proposal, submitted to a Tokyo district court, values Elpida at no less than 300 billion yen, or $3.8 billion.

Last month, Micron offered to buy the chipmaker for 60 billion yen in cash. Under the deal, Micron agreed to pay an additional 140 billion yen, or $1.78 billion, in future annual payments to help cover the company's debt. Separately, Micron also offered to pay 26.1 billion yen to the Powerchip Technology Corporation for a 24 percent stake in the Rexchip Electronics Corporation, a chipmaker that Elpida and Powerchip jointly own. While the transaction is seen as a potentially savvy one for Micron, which will be able to significantly expand its manufacturing capacity with Elpida's plants, the bankrupt company's bondholders have viewed the deal with skepticism.

“The agreement under which Micron will acquire Elpida, one of the largest and most technologically advanced chip makers in the world, for a cash consideration of ¥60 billion or less is totally inadequate, grossly unfair to creditors and other stakeholders and must not be allowed,” the group said in a statement. “Micron has been awarded Elipda at a bargain basement price in a closed process that has lacked transparency, meaningful competitive bidding, and any involvement of creditors.”

Specifically, the bondholders are leery of Micron's promise to pay 140 billion yen in future payments (which are based on fees Micron expects to pay Elpida for services). Describing this offer as “vague and confusing,” the bon dholders said in Tuesday's statement said. The bondholders collectively owned $293 billion of bonds issued by Elpida as of the end of July, according to a filing in United States Bankruptcy Court in Delaware.

Micron does not adequately guarantee that these payments will ever be made and has instead implied in filings that it is uncertain if Elpida will generate enough cash to cover these payments. The group also said that the Micron deal did not properly value Elpida's intellectual property, its manufacturing plant in Hiroshima and the company's stake in Rexchip.

According to the bondholders, their alternative plan will allow suitors to buy pieces or all of the company in a less-rushed manner. To help Elpida, the bondholders are offering a loan of 30 billion yen.