Hello everyone and welcome to Siltronic's conference call on the execution of a business combination agreement with GlobalWafers and the announced tender offer to Siltronic shareholders. Please note that this call is being recorded and streamed on Siltronic's website. The call will be available as an on-demand version later today. Your participation on this call implies your consent with this. At this time, I would like to turn the conference over to Petra Müller, Head of Investor Relations and Communications of Siltronic AG.
Thank you, Operator. Welcome everybody on the line and thanks for dialing in at such short notice. Following our ad hoc release and more detailed press release of yesterday evening on the signing of a business combination agreement with GlobalWafers and its intention to make a tender offer to Siltronic's shareholders, we would like to provide some further background and color. Please note that this is not a business update and as such we will not comment on current trading or business outlook. With me on the call are Dr. Christoph von Plotho, our CEO, and Rainer Irle, our CFO. We will start with an introductory statement by Chris. Afterwards, Chris and Rainer will be happy to answer your questions. As a reminder, today's call is being recorded. You can follow the webcast on our website where you will also find today's presentation.
Please note that management comments during this call may include forward-looking statements which involve risks and uncertainties. Therefore, I draw your attention to the disclaimer at the end of our presentation, and now I'm pleased to hand over to Chris.
Thank you, Petra. Ladies and gentlemen, welcome to our call today. After extensive discussions, GlobalWafers and Siltronic signed the business combination agreement and GlobalWafers announced its intention to make a public tender offer to Siltronic's shareholders. I would like to take this opportunity today to explain to you why we think GlobalWafers is the right partner for the journey ahead of us. You all know that the semi-industry is always driven by some market dynamics, but despite all short-term challenges, the medium to long-term outlook for the wafer industry is intact. As the executive board, we take decisions in the best interest of the company and its stakeholders. The announced offer price in such a transaction is a very important factor in this assessment, and we consider the offer price of GlobalWafers is attractive and appropriate for our shareholders.
In addition, we also have to consider a variety of other factors, including transaction security and the long-term prospects of the company and the employees. Taking all these factors into account, we are convinced that the offer by GlobalWafers represents an attractive proposition for all our stakeholders. The two companies together would create one of the leading wafer manufacturers worldwide. Technology leadership, together with strong supply chain management and manufacturing resources, will create a best-in-class company with a sophisticated product portfolio for our customers. The expanded production and technology capability will satisfy the growing demand for wafers. Both companies have complementary skills and will jointly have more resources to invest in capacity expansion at the right time. And of course, together, we will scale our business. We agreed with GlobalWafers that Siltronic will continue to manage its operating business with a high degree of strategic freedom.
There will be business continuity with customers, suppliers, and of course, other stakeholders. We think that the offer by GlobalWafers is attractive for our shareholders, for Siltronic, and for our employees. The offer is attractive to our shareholders as the offer price of EUR 125 per share in cash represents a 48% premium on the 90-day weighted average price as of November 27th. Why November 27th? Because this was the last trading day prior to our public announcement on the advanced discussions with GlobalWafers. At that time, the average target price of our analysts was EUR 95. The tender offer will provide for a minimum acceptance threshold of 65% of all Siltronic shares. In this respect, Wacker Chemie announced that it has concluded an irrevocable undertaking with GlobalWafers and will tender its entire shares of approximately 30.8%. The offer is good for Siltronic.
Our Burghausen site will stay our R&D hub, and we have agreed that there will be sufficient investment budgets to maintain and further develop our existing production capacities. While we do not assume to see any impact on our top line, we are sure that we will be able to take advantage of some synergies on the cost side, and it's usually the case in such transactions. You all know that at some time in the future, we will have to face considerable investments to expand our capacities. A combined company will have much better financial and operational capabilities to lift such a big project, and last but not least, GlobalWafers acknowledges that our strong brand with a high degree of brand awareness by customers and in respective markets. Therefore, Siltronic will continue under the existing name, and we will preserve our brand under the GlobalWafers umbrella.
The third point, our employees. It was very important to us to find a partner who values the strong workforce of Siltronic. GlobalWafers was prepared to agree to a far-reaching commitment for our sites and employees, showing the respect they have for our technological achievements and the important role our employees play. The business combination agreement includes guarantees for our German sites, and our employees in Germany are protected against compulsory redundancies until the end of 2024. Also, the existing pension plans remain unchanged. The partnership with the German employee representatives will continue, and the supervisory board will continue to be co-determined. With GlobalWafers, we have found the right partner to drive our business forward. We believe that there will be a strategic and cultural fit between the two of us and that we complement each other in many aspects.
The combined production footprint will give us more flexibility. GlobalWafers is excellently positioned close to top customers, particularly in Asia. We are both strong in innovation. We both cater for our employees and are strong believers in ESG and diversity. We expect the publication of the offer document after review of BaFin still in December, with the acceptance period running for five weeks. Following the publication, we, the executive board and supervisory board, will issue a reasoned statement on the tender offer. The process to obtain regulatory approvals has already started, and we expect to close the transaction in the second half of 2021. With this, we close our presentation, and we are now available for your questions. Operator, please open the Q&A session.
Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial zero two to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question comes from François Bouvignies. Your line is now open.
Hi, everybody. Thank you very much. I have a couple of questions. The first one is on the timing of the deal. So if we listen to the industry overall, it seems that the outlook is really improving in 2021. And even you said in previous calls and some of your competitors as well, including GlobalWafers, that we may be in a tight situation in terms of supply demand by the end of 2021. So I was just wondering why now, if you are so optimistic about the future, is it really the right time, or should you have waited maybe to get the benefit of all the positive outlook that is ahead of you? And related to that as well is, how do you think your customers will react to such deals, given that they like to have diversified supply chain?
That would be interesting to have your view as well, and I have a couple of more technicals, if I may.
Yeah. Good morning, François. On the timing, I think the timing is a good timing, and the outlook is maybe not as rosy as a few people paint now. I mean, let's look at a few things. I mean, the market is not yet tight. I mean, we are talking about utilization rates in the low 90s now in 300 mm, improving over the years. But it is that the pricing environment is currently rather seeing still prices going south than north, which may change during the course of next year, and also, I mean, there's significant FX headwind ahead of us, so I mean, 2021 won't be such a great year as some people expect. But on the other hand, I mean, obviously, we know that the market will be back to growth and the things will get tighter.
Then the questions will come up on the new greenfield investment. I think, as Chris pointed out, it's much easier to do that in a partnership with another strong player than stand alone. Customer reactions so far, the questions we have received were more technical in nature. Actually, we don't expect any particularly strong responses from customers. I think customers appreciate strong suppliers that have the financial background. I think customers in the midterm will also be happy to see that the combined entity has the financial strength to invest significantly into future growth.
Okay. That's very clear, and do you think that if they have one less supplier, basically in terms of numbers, do you think it's an incentive for them to get more China into the equation just to get more diversified supply chain?
Customers are concerned about supply more in the way that they don't get everything from one place. So they think more about business continuity and about kind of not having all the supply in one region, which might even be prone to earthquake or other disasters. So a combined entity will have as many manufacturing sites as the two separate entities had. So I don't think they will change their supply strategy.
Okay. That's very clear. Thank you. And the more technical points I have, it's if in a scenario that you don't hit the 65% acceptance condition, what happens to the Wacker stake? I mean, is there a mechanism, I mean, ultimately that under which they ultimately purchase that stake, or how does it work? And why the 65% number? I mean, it seems a bit of a strange number compared to other kinds of deals. So I just wanted to have your thought on the rationale for that and if there is any domination agreement in the pipeline.
Well, François, let me try to answer your question. First of all, I want to say 65% is a strange figure. I think the 65% is simply based on the fact that we said if Wacker will tender their shares, we want to have at least 50% of the remaining shares. And this is basically the rationale between the 65%. Please understand that we do not comment on the irrevocable that Wacker signed with GlobalWafers. We are not the right persons to answer these questions. And you also mentioned a domination agreement. I think today it's a little bit too early to speculate about the future.
Great. Thank you very much for your answers.
You're welcome.
The next question comes from Constantin Hesse. Your line is now open.
Hi, there. Good morning. Thank you for taking my question. I have one because one has just been answered. Just in terms of regulatory approvals, do you foresee any issues here going forward, both in terms of antitrust as well as potential German government or anyone else, U.S. potentially?
I think from antitrust, we do not see significant risk. Also from politics, whether it's CFIUS or the German government, we do not expect significant hurdles. We looked into that relatively good in detail, and this is the best guess we have today. Things like that are always difficult to predict.
Yeah. Thank you very much.
The next question comes from Florian Treisch. Your line is now open.
Yes. Hi, gentlemen. Thanks for taking my question. So I would really agree to the point that GlobalWafers is a great partner. I think it's a win for almost all stakeholders in your corporation. The question is a bit. It simply looks at minority shareholders, which is our cup of tea, are the losers in a relative term. So clearly, what is your argument? Why should I tender? Why should I not stay invested? Maybe I missed that argument. In the end, I think you make a perfect case to stay invested. So are you happy to see investors staying? So it's more a broader question. The second question is you talk about a sufficient investment budget will be available, and then you said maintain and further develop existing, and the important is existing production capacity. This is a key word for me.
Does that mean that there is no greenfield commitment on the GlobalWafers side for Siltronic, i.e., if greenfield, this will be done by GlobalWafers, i.e., minority shareholder will be invested in a company with no kind of capacity growth perspective in the coming years? Thank you very much.
Thank you for your question. I will try to answer the last part of your question regarding the investments. This only refers to the existing capacities and capabilities we have today in Germany. I think we were always relatively outspoken if Siltronic would decide about the greenfield investment that it won't be at an actual location in Germany. I think we always gave key arguments why we see our Singapore location there in a top position. I do not believe that the thinking about the top position of our 300 mm activity in Singapore is different in a combined company. I will give you a reason for that. When somebody invests in, let's say, a new capacity, this new capacity must be leading edge. Leading edge is typically defined by Epi wafers because Epi wafers are more demanding.
I think the industry and also GlobalWafers would agree that we have the better product if you talk about leading edge 300 mm Epi wafers. Consequently, such an investment is, from a logical point of view, it makes much more sense in a Siltronic location than in a GlobalWafers location.
Maybe as a follow-up to that, you are building a new facility, so there is no kind of leverage from an existing fab, or do I get that wrong? So in the end, you can do it in a Siltronic way in the GlobalWafers fab in the future, right?
I didn't get your question. I'm sorry.
I fully agree to your point that your product is leading edge, that you have the best-in-class technology. I really appreciate that. The point is, looking forward, if you're only getting the commitment in the press release for existing capabilities, I agree the focus must be on Singapore as this is the best or leading edge fab globally, probably. The question is a bit, why should you do the greenfield investment, and why should not GlobalWafers do it? It's all out of the perspective of a minority share. If I stay invested at Siltronic, and I love to play the greenfield story that you are leading edge, if GlobalWafers is doing it, you are giving them the know-how, the IP.
In the end, you are squeezed at Siltronic investor, or is there really a written commitment by GlobalWafers that you will do the greenfield and not GlobalWafers?
No. We did not even talk about it, but I think when you talk about technology, technology is always a combination of the people, of the equipment, and of the process steps. And this is something which is relatively difficult to be transferred. Years ago, Siltronic looked into the possibility to move technology from Burghausen to Freiberg. And although this would only have been a move within Germany, it's simply not possible because technology is a combination of people, process, and equipment. And we cannot move process steps to a location where the setup of equipment is different.
Okay. Well, that's a good point. Thank you for the clarification.
The other question on the pricing and the minority shareholders. I think that's a very important question, and the answer is quite clear. We believe it is a great price. Please keep in mind, since our first talk a week and a half ago, already more than or about 50% of the non-Wacker shares have been traded, which tells us that those 50% seem to be very happy with the price they got offered. If you look back, I mean, the IPO price was EUR 30, and people that were invested from day one, they achieved more than 300% gain. The average price over the time was, since we are public, was around EUR 70, which is an 80% gain for everybody.
If we compare it to the average target price of our analysts, which is around EUR 95 prior to the announcement, that's still 30% higher than what our analysts proposed to be a fair price. So in total, I think we can very well say that the price of EUR 125 is a very fair price, and basically all of our shareholders make a big plus when accepting that offer.
So I agree compared to the IPO price. I think the one problem now is the 50% who have sold the shares are no longer in, and the 50% who have bought into really wants to have a higher price as they paid at least EUR 124 or now even above EUR 125. So yeah, good luck in getting 65%. Thanks.
The next question is from Robert Sanders. Your line is now open.
Yeah. Hi. I'm struggling. I'm afraid with this 48% as well. So what happened? You said on November 11th, you sort of signed an LOI, but then you released on the 29th. I mean, surely when you signed an LOI, when the stock price was EUR 91 or whatever it was, why not put out a press release? Did you have to get some kind of board approvals or something? Because, I mean, the premium is 10%. That's what the premium is. So the net present value of the synergies is very, very unlikely to be equivalent to a 10% premium. So what stopped you from putting a press release out earlier? Because by putting a press release out on the 29th, which is 10% below the offer, it looks like you've been rushed into putting out a release. So what are the mechanics? Maybe I'm missing something.
I mean, I've worked in M&A in the past, and I'm still struggling. What explains the timing of the press releases?
So Rob, I'm not sure which LOI you're talking about. There is nothing more than an LOI. I think what we said, I mean, we discussed with them for a couple of months, and there were a lot of issues to be discussed. Price being one, but also the strategy, the kind of the guarantees we get for the existing sites and so on. So a lot of things to be discussed. And there were always a lot of open items, and we continued to talk.
The moment where we kind of felt that now the major hurdles had been cleared and the major concepts have been agreed upon, that is the moment where our legal advisors say, "Now we have to do a TOB." That's what we actually did a week and a half ago when on that Sunday, basically on that Sunday where we discussed with them and most open items were resolved. Then we said, "Okay, now we are closing the agreement, and now we have to go public with our TOB release.
Okay. And then the second question is on GW's financing with debt, and they're going into a heavily levered position in an industry that has been loss-making typically over the last 10 years on average. So why not encourage? I mean, you've seen the share price reaction of GlobalWafers, how much they're loving the deal. Why not encourage them for the sake of the pro forma combination to raise equity in Taiwan? Because they seem to love the deal. Because what you're doing, ahead of a big greenfield expansion, is you're making the pro forma entity heavily levered, and you just said the 2021 environment is not as good as the market thinks. So on that point of view, I'm also struggling as well.
I mean, Rob, seriously, I mean, that's a question that you better ask them. I mean, we know about how they will finance step one. You know that you always do that with kind of a bridge financing, not knowing what the acceptance rate will be in the end. What the step two is, I mean, we have some idea, but I think we are not the party to disclose that. I really think you should talk to GlobalWafers about their Phase 2 financing of this acquisition.
Okay. Well, they've got their call in a couple of hours. Thanks a lot.
The next question is from Jürgen Wagner. Your line is now open.
Yeah. Good morning. Thank you for letting me on. What would you do to your strategy if the deal fails? You just said that greenfields would be easier, etc. And then second question, just a clarification, because my understanding is that it's a voluntary bid. And if the threshold is not reached, then Wacker would as well get back their shares. You mentioned we should ask Wacker, but then in the press release, you write that it's irrevocable. So yeah, please clarify. Thank you.
Thank you for your question, Jürgen. First, it's irrevocable. Yes, we say it's irrevocable, but the conditions of the irrevocable, please ask the guys who signed it, and that's not Siltronic. These are other people. And then your other question, which has somehow a negative approach, what would we do if we fail? Today, we are convinced that we won't fail. But I tell you, in case we need a plan B, we have a plan B. But I think today it's not a good occasion to discuss plan B because we are convinced that plan A will work out.
Okay. Okay. Thank you.
You're welcome.
The next question is from Michael Heck. Your line is now open.
Yes. Hello. It has been suggested by some market participants that Wacker has other interests with GlobalWafers. Can you tell us whether that's the case and what it could be? And do you see Wacker doing something else with GlobalWafers on some of their other divisions?
No. We do not comment on possible relationships between Wacker and GlobalWafers. Please refer to Wacker or GlobalWafers.
The next question comes from Gezan Colombo. Your line is now open.
Hi. Good morning. I have two questions. The first one is about the potential cost synergies because, I mean, in your speech, you said that there will be cost synergies in the combination of the two companies, but if you can elaborate more? And my second question is, I mean, going back to the valuation, because clearly it looks like an industrial, right, industrial combination. But for the shareholders, it doesn't look like that there is any control premium because, I mean, if I look at some industrial valuation of Siltronic, I mean, looking at the value of your plants, I mean, it's not very, very, very difficult to go at 120. But if the value of the plant is 120, I mean, GlobalWafers is buying Siltronic without a control premium because if they want to reach 65%, it's clear that they will control the company.
So if you can, sorry if I go back to there, but if you can clarify more, I mean, about the valuation.
So on the first question, the synergies, I mean, we can only provide a very generic answer today because at this point of time, the deal is not closed, and we wouldn't even be allowed to disclose detailed information. But you know that there are typically synergies when two companies in the same industry go together. The second question was on the price. I think we talked about that before you asked if there's no control premium. We believe the price is very good. And I think we also mentioned a few comparisons. For example, that the price we agreed upon is more than 30% higher than the price target of our analysts, which was already above the average price of the last three months. So I think the combination, it is a good price for our shareholders. It is also a combination which makes a lot of strategic sense.
And it is also a combination that gives our employees a future. And I think the combination of the three is the reason why we say this is a very good deal.
Sorry, if I can add to my questions, always about the valuation, but I mean, clearly, I mean, the shareholders are going to receive cash, but did you not think about, I mean, or ask GlobalWafers about a different possible combination where shareholders of Siltronic will receive GlobalWafers shares? In that way, at least there will be the benefit of the synergies and the potential evolution of the cycle, because clearly now the biggest part of the analysts, I don't know, possibly they can be wrong, but many analysts are forecasting a better market in the next two to three years, so I mean, receiving shares of GlobalWafers, I mean, at least there will be the benefit of, let's say, of the synergies on one side and the potential good evolution in the market.
It's an all-cash deal. Our understanding is that that is definitely what the majority of our shareholders will appreciate.
Okay. Thanks.
We don't have any more questions at the moment. A quick reminder, if you want to ask a question, please dial zero one on your telephone keypad now to enter the queue. We have one more question from Martin Wood. Your line is now open.
Hi there. Thanks for taking the question. I guess coming back to the synergy point and potentially talking about the control premium, there's clearly a bigger value being ascribed to the overall industry from yourselves being acquired by GlobalWafers, which is never going to appear in an individual stock analyst target price, i.e., the potential future capacity being more reasonably brought into the industry. I guess you say there's no revenue synergies, but there are clearly industry-wide capital and revenue synergies that aren't captured. How did you value within your thoughts about the price those potential future - yeah, you don't talk about revenue synergies, but potentially the disynergies from the deal not happening?
I mean, I guess we're going a bit in circles now. Obviously, the board has done its own extensive valuations of the company on a short but also on a long-term basis, also including significant investments in a new fab. We did all of that. We get to a DCF value that is clearly below the current price. If you include synergies in that, then it's definitely a fair price. We also have external advisors that looked at the valuation, and that clearly indicated to the boards of Siltronic that this is a fair price.
The next question comes from Jack Dempsey. Your line is now open.
Hi guys. Can I just ask on the last time we spoke, Rainer, I guess after the deal, you said that the price was partially based on GlobalWafers' ability to pay. And obviously, it's an all-cash payment for Siltronic shareholders, but in their regulatory filings, since the deal has been announced, they're obviously going to refinance with equity. So in light of obviously the very strong share price performance from GlobalWafers and the value that's been created for their shareholders, does it change your view that EUR 125 is the price that GlobalWafers can still afford?
I mean, the share price reaction was positive not only of GlobalWafers, but also the other peers that are not involved in the deal. The market reaction was very positive. That's something we appreciate. I'm not sure what else we can say about that.
I just guess the point is that the industry is going from five players to four players, and there's obviously a lot of benefits for the remaining four players. But as Siltronic minority shareholders, we don't get to share in that game. So that would be the question around why I don't think EUR 125 is the right price.
Yeah. I mean, there's really not a different answer than we had before. I mean, it's a great premium. I mean, the average investor that bought our share bought it at around EUR 70. That is an 80%. That's an 80% premium. Obviously, it's not for the shareholders that bought their shares in the last week. I think if we look at the valuation, if we look at their still difficult environment that is ahead of us, including the exchange rate development, EUR 125 is a great price. And if you look at, I mean, the multiple is higher than it was ever before. It's more than 10 x 2021 EBITDA. That's all good. And I think it's a great price. We do a DCF valuation, as I said. We clearly come in below that, quite a bit below that.
And then if we add synergies, we get to an answer that EUR 125 is really a fair price for this deal.
Okay. Thanks.
The last question is from Constantin Hesse. Your line is now open.
Thank you. Just one quick follow-up. Very simple, really. Because you seem very confident that plan A, i.e., this deal is going to work out. So I'm just wondering, have you had conversations with some of your larger institutional holders, and what kind of feedback have you heard, if you have?
We will appreciate requests for meetings from shareholders, and we will talk to them. But the feedback we received so far was okay.
Thank you.
That was our last question for today. I give back to Petra Müller.
Okay. Thank you very much. This concludes our Q&A session. Thank you very much for your participation. If you have further questions, please get in touch with the investor relations team. Thank you and goodbye. Stay safe and healthy.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.