Micron Technology: Takeover Target For Private Equity?

Micron Technology (MU) develops memory products for many different applications. I was recently speaking with a friend who was leaving Arizona and applying for a job at a Micron (MU) / Intel (INTC) project in Utah. He was convinced that hard drives as we know them will soon be outdated and instead we will simply carry flash memory around with us from computer to computer - or in other words, take our own work around with us wherever we go and use public kiosks instead of laptops whenever we travel. The idea would be to have everything, including all of our programs and operating systems, installed directly on the flash memory. My friend sees the potential for growth in flash memory to be immense.

This growth is certainly a possibility. Flash memory technology is getting used more and more in a variety of devices. Cell phones use it, GPS systems use it and iPods use it. Almost everything that stores any data in the future may end up using it (including cars, light posts, stoplights, refrigerators and anything else electronic).

MU has a market cap of about $11B. However, MU has current assets of almost $5B, and total equity of $8.5B. This equity ratio makes it an extremely attractive target for private equity. A current asset ratio of 0.46 or 46% is extremely high, as is a total equity ratio of 0.77 or 77%. Revenues for Micron Technology, Inc. were about $5.25B last year alone, 8% ($408M) of which was net.

With the recent decrease in share price since October 2006 as an added incentive, there could be a scramble for private equity to grab Micron.

Analysis of LBO Rumors

If the potential for growth is as big as my friend claims it to be, or even if it seems to be as big to investors, Micron Technology, Inc. could be the perfect target for a Leveraged Buyout. Especially with its extremely high current asset and total equity ratios.

In December rumors were circulating that Goldman Sachs (GS) would be leading the private equity group for the takeout of MU at or around $21.00 per share. More recently rumors of LBO have had a price of around $19.00 per share. Either way, it would still be at least a 33% premium over the current price (around $15B). As of Sep 30, 2006, Goldman Sachs Asset Management held 46,366,496 shares, and was acquiring more at the time. Only two other institutions held more shares at the time: Primecap Management Co. and ClearBridge Advisors. Goldman may very well be leading a leveraged buyout.

Analysis of a Takeover

Intel Corporation (INTC) could be a possible acquirer. Intel and Micron already have joint ventures, so a takeover wouldn't be extremely difficult. While Intel has focused mostly on processors, their memory division is somewhat limited, and much of it is based on joint ventures. A takeover of MU could make sense. INTC has $17B current assets, so an acquisition of MU would be possible even if it meant paying cash. INTC's market cap is almost $128B.

Conclusion

A company with Micron's assets, potential, and joint ventures could definitely be a very attractive takeover target for private equity. A leveraged buyout may not be too far off in the distance.

Disclosure: Author is long MU.