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Korea's Hynix Semiconductor in Financial Straits

Cash-strapped Hynix Semiconductor of South Korea faces an uncertain future. The chipmaker's board of directors rejected a takeover bid by Micron Technology of the United States, but its creditors and the South Korean government say they still hope the company will be sold.

A quick end to Hynix Semiconductor's problems appears unlikely, according to semiconductor industry analysts. South Korean officials have been deeply critical of the company board's decision Tuesday to block the long-awaited, $3 billion sale of its memory-chip business to Micron Technology of the United States.

The board says it believes Hynix can successfully operate as an independent entity. But officials at the South Korean Finance Ministry say Hynix's chance of succeeding on its own is remote. Lee Phil-Sang, a business professor at Korea University, agrees. He says that Hynix's huge corporate debt of $6.6 billion is one of the largest in the country and an embarrassment to the government.

Most of the debt is held by Korean banks, which had regarded the takeover by Micron as the best opportunity for them to recoup some of their losses. "The government really wants Hynix to be sold even though the board of directors rejected it [the offer]," he said. "So the government is considering reshaping the board of directors and starting renegotiations. As a matter of fact, it is a matter of Korean economy, not simply a matter for Hynix. So much money was involved in Hynix."

The firm's creditors say they are unwilling to bail out Hynix again after having done so twice last year. Finance Minister Jeon Yun-Churl said Wednesday that he supports their view.

The board's rejection of the takeover bid leaves Hynix exposed to oversupply in the memory chip market one of the main factors behind the company's woes. The deal would have created the world's largest maker of memory chips, ahead of Samsung Electronics, which now holds the top spot with a market share of more than 25 percent.

Professor Lee believes the sale is still possible. "So far, I believe the only probable partner is Micron," he said. "Infineon of Germany has no intention to buy Hynix. The fundamental concern in the memory chip industry is that it has too much production capacity. So if Micron takes over Hynix, the problem of overcapacity could get solved easily. I think there is a strong possibility of renegotiation and I believe that is the only way for a solution."

The rejection comes just as two other U.S. firms are cementing deals with South Korean companies. General Motors is purchasing the healthier parts of indebted Daewoo Motor. Investment bank Lehman Brothers has signed a tentative pact to invest $1 billion in Woori Finance Holding. Lehman officials say they hope to finalize the deal next month.