Elpida Memory Inc. bondholders said the integrity of Japan's
corporate restructuring is at stake in a brewing dispute over the
planned sale of the chip maker to rival Micron Technology Inc.
(MU).
On one level, the battle is a run-of-the-mill bankruptcy fight
over whether Micron is paying enough for Elpida. Bondholders said
one piece of what Micron will get if the deal goes
through--Elpida's 65% stake in the Taiwanese manufacturer Rexchip
Electronics Corp. (4932.OT)--is worth more than the upfront cash
Micron is proposing to pay for all of Elpida. Cash, patents and
other assets are essentially being given away free, bondholders
contended.
A spokesman for Micron couldn't immediately be reached Tuesday
for comment on the Elpida bondholder critique.
The proposed sale is expected to form the core of a
creditor-repayment plan that Elpida's insolvency trustees are
expected to file in August. Bondholders want to block the sale and
are offering to fund a reorganization for Elpida. That is
preferable, they said, to a deal that allegedly requires Elpida's
"creditors to pay Micron for the privilege of taking over Elpida's
assets."
A spokesman for Elpida couldn't be reached for comment Tuesday
about the bondholder uprising, which surfaced in papers filed in
the Tokyo District Court and in the U.S. Bankruptcy Court in
Wilmington, Del.
Elpida placed its U.S. assets under Chapter 15 protection in the
U.S. in March to protect them while the main restructuring work
goes on in Japan.
On another level, the case is a test of whether investors who
are accustomed to having their voices heard in U.S. bankruptcy
courts have any sway in the Japanese system of handling financially
troubled corporations. Bondholders that claim "extensive experience
in rehabilitating troubled companies around the world" are keeping
a close eye on how the Japanese court responds to their protest,
according to court papers.
Japan's system has changed in recent years to appear more like
the U.S. system, with members of management--in Elpida's case, the
chief executive who led the company into bankruptcy, Yukio
Sakamoto--being appointed along with independent outside trustees
to call the shots in the restructuring. Unlike the U.S. system,
however, Japan doesn't automatically provide a forum where
creditors are entitled to show up and be heard, because the
independent trustee is assumed to have their interests at
heart.
"This is a case that must test--and confirm--the integrity of
the relatively new business trustee/debtor-in-possession approach
to corporate reorganization," bondholder attorneys wrote.
The issue is at the forefront in the Elpida case, bondholders
said, because they suspect Sakamoto is in line for a "high-level"
position with Micron after the takeover. The potential conflict of
interest by one of the two trustees making the decisions about the
Micron deal calls for an investigation, bondholders said.
"Mr. Sakamoto is in a position of inherent conflict and the
announced deal is highly favorable to Micron. All of Elpida's
creditors are entitled to have the above concerns addressed. Until
they are, justified--and exceedingly troubling--questions as to the
integrity of the process will persist," said the bondholder court
filing.
It's clear from court papers that bondholders aren't getting
much of a hearing from trustee Sakamoto on their objections to the
Micron sale. If the bondholders prevail, they said, jobs at Elpida
will be saved, "aside from senior management."
Properly managed and funded, Elpida can thrive in a market for
dynamic random-access memory, or DRAM, chips that "is well on the
road to recovery," bondholders said.
Bondholders appeared to be moving forward assuming the Japanese
court will heed them. They have hired Crosspoint Advisors, a
Japanese financial-advisory firm, and turnaround consultants
Alvarez & Marsal Inc. to develop an alternative reorganization
scenario to put up against the sale to Micron.
Write to Peg Brickley at peg.brickley@dowjones.com.