TEXT-S&P:Proposed Samsung Mobile merger is credit quality positive
(The following statement was released by the rating agency)
May 10 - Standard & Poor's Ratings Services said today the proposed merger of Samsung Display Co. Ltd. (SDC; not rated), Samsung Mobile Display (SMD; BBB+/Stable/--), and S-LCD Corp. (not rated) would positively effect the merged entity's credit quality if the deal proceeds as planned.
On April 27, 2012, Samsung Electronics Co. Ltd. (SEC; A/Stable/A-1) announced that SDC will merge with SMD and S-LCD as of July 1, 2012. SEC will remain the major shareholder in the merged entity, with 84.78% of the shares.
In our view, the proposed merger somewhat enhances the credit quality of the merged entity compared with that of SMD. We anticipate that the merged entity's financial risk profile will improve to some extent, mainly due to SDC and S-LCD's relatively low levels of debt. Also, SDC's substantial cash holdings should somewhat help fund SMD's ongoing capital investments in organic light-emitting diode (OLED) panels. However, we expect the free cash flow of the merged entity to remain negative over the next one to two years, mainly due to its large capital investment burden.
In our view, the proposed merger will have a mixed effect on the merged entity's business risk profile. The merged entity will have a more diversified business and a better competitive position than SMD in the global market for display panels, in our opinion. However, we expect the merged entity to have lower profitability than SMD because SDC and S-LCD have weak profitability, mainly due to a downturn in the market for LCD panels.
It is somewhat premature for us to assess whether the merged entity's credit quality will exceed SMD's 'BBB+' rating. Key measures of the merged entity's credit quality, its financial policies--including its capital investment plan--and the benefits of the merger will be important factors in our ongoing analysis.
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