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Asustek Reduces Pegatron Holding to 25%, Values EMS Provider at $2.9B
December 14, 2009 |Estimated reading time: 2 minutes
TAIPEI, Taiwan — Reuters reports that the netbook PC maker Asustek (2357.TW) will reduce its holding in Pegatron, its fully owned contract electronics manufacturing (CEM) subsidiary, to 25%, in a move to reduce any conflict of interest between the two sides. Asustek will reduce number of shares issued by 85%, with each Pegatron share valued at about T$40.60. Pegatron has had trouble competing with other EMS providers due to its attachment to OEM Asustek, Reuters suggests.Asustek will reduce the number of shares issued by 85%, and all shareholders will receive shares of equivalent value in Pegatron Holdings, which will be listed by the second half of 2010, Asustek reports. Asustek CFO David Chang notes that "Pegatron also manufactures notebook PCs on behalf of other companies, and may have lost orders in the past because of its relationship with Asustek." Asustek started as a contract manufacturer of motherboards, but has increasingly turned to selling laptop PCs for higher profit margins, spinning off its manufacturing arm in 2008 into a fully owned subsidiary company. However, Pegatron has been unable to compete effectively with bigger rivals such as Hon Hai (2317.TW) and Quanta (2382.TW) over fears that the information and profit it receives may be used to benefit Asustek, Reuters reports. Read more about EMS/OEM strategies on SMT's Facility Management topic center.Asustek said it currently values Pegatron at T$92.89 billion (USD$2.9 billion), with each Pegatron share likely to begin trade at about T$40.60 at its book value when it is listed. Based on the PC brand's last traded price of T$64.40, a shareholder who owns 1,000 shares now will have 150 Asustek shares and just over 400 Pegatron shares at the end of the entire exercise. The changes are subject to approval by shareholders at a meeting to be held on Feb. 9, 2010, Chang said, with the company's shares likely to be suspended from trading in the middle of next year to complete the capital reduction exercise. "The biggest issue for shareholders today is that Asustek shareholders may not be able to trade with their shares when it is suspended from trade, but otherwise everything remains largely the same," said Asustek's Chang. Reuters notes that Asustek pioneered the netbook PC in 2007, a small low-power portable PC optimized for email and other web activities, but has been gradually losing market share in that segment as bigger rivals such as HP (HPQ.N) and Dell (DELL.O) enter the space. The announcement came after the Taipei stock market closed on Friday. Asustek shares rose 1.26%, lagging the main TAIEX's 1.53% gain. ($1=32.3 Taiwan dollar) This Reuters news article is based on reporting by Kelvin Soh and editing by Jacqueline Wong.