Two Taiwanese liquid crystal display (LCD) panel makers agreed to merge in a deal that will leave the resulting company in a much better position to take on the two market leaders in South Korea.
AU Optronics, the world's third-largest maker of the flat display screens used in notebook computers and LCD TVs plans to acquire Quanta Display in an all-share transaction, the companies said last Friday.
Quanta will trade 3.5 of its shares for one AU share to complete the deal, valued at about $US2.2 billion based on the companies' closing stock market prices on Friday.
The acquisition will transform AU from a distant third-place competitor in an LCD industry dominated by two Korean giants, Samsung and LG.Philips, into a more potent rival with more than 19 per cent of the capacity in the industry. Although its a necessary move for the industry, which was suffering falling prices due to cutthroat competition, it's not very good for users. The deal is expected to push up the price of LCD panels, which are the screen parts of laptop computers, LCD TVs, desktop monitors and a number of consumer electronics gadgets.
"They'll be very close to Samsung, but still only in third place," an analyst at Yuanta Securities Group, Eric Lin, said. "Consolidation is good for commodity industries. Pricing is very soft right now. Consolidation will help stabilise prices."
AU will not change its name as a result of the transaction, in which it will absorb Quanta Display. The deal is still subject to shareholder and regulatory approval, but is expected to close on October 1 of this year. The boards of both companies have already approved the deal.
The deal also extends into other IT businesses controlled by business groups associated with the two companies. Quanta Display, for example, was built to supply LCD screens to its parent company, Quanta Computer, the world's largest notebook computer maker. AU will continue to supply Quanta.
"We built Quanta Display five years ago because we weren't able to get enough panels, but now panel supply is more even with demand," chairman of both Quanta Display and Quanta Computer, Barry Lam, said. "Going forward, [AU] will give us all the panels we need."
The two also talked about cooperating in other areas, such as mobile phones. AU is part of the same business group as BenQ, which took over Siemens's loss-making handset division late last year.
The head of BenQ, K.Y. Lee, will remain the chairman of AU Optronics after the acquisition, and H.B. Chen will remain the company's president.
Quanta Display vice-chairman, C.C. Liang, will become vice chairman of AU Optronics.
The companies do not plan to lay off any workers as a result of the merger.
In fact, the LCD industry is growing so fast in Taiwan, companies have had to offer ever greater incentives to attract enough workers to their factories.