Alphatec Case
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History of Alphatech Group I
Charn Usawachoke, founder
Thai Chinese, born Bangkok
Educated North Texas University
Worked for Honeywell in the US before returning to Thailand
1989 Charn borrows money to buy part of an IC packaging plant from Phillips NC and to build a new factor in Chanchoengsao. Phillips agrees to buy 90% of output for five years. Production begins in 1991.
Packaging of IC → imbedding the IC in the plastic board.
History of Alphatech Group II
IPO in Thailand, increased bank and public debt (increase leverage substantially)
Acquisitions:
Semiconductor assembly and test plant from National Semiconductor
Telephone assembly and test plant from AT&T
Tool and plastic die business
Exhibit 3
1993 → substantial increase in borrowing
History of Alphatech Group III
1994 – grand strategy
Creates Submicron, to be Thailands first state of the art wafer fabrication facitliy at a cost of $1.1 billion. Initial financiaing includes $350 million of debt provided by 26 banks and finance companies.
AlphaTechnopolis
4000 acres industrial park. Including electric power generation and water plant. Cost at least #750 million. Plans for hospital, school, university, etc.
History of Alphatech Group IV
1994-1996
More acquisitions and investments
Alphatech Shanghai, JV with Shanghai Industrial and Electric Holding Group and Microchip Technology (Arizona), low-tech chips.
Alphatech Electronics USA – acquired Indy Electronics for $30 million
Life insurance, equipment leasing, telephone equipment
Alpha Memory
Mr. Chips
1995-1996
Charn is the golden boy of Thai high-tech
Alphatech receives Financial Mangemnnt Award from Asian institure of Management (1995)
Electronic Business Asia Magazine names Charn one of Asias top business executives (1996)
Business Strategy I
What was Charns plan as of 1989?
Focus on subcontracting of semiconductor – economies of scale
Global semiconductor companies sub-contracting packaging and testing functions to independent specialists.
Independents offer cost savings due to economies of scale and scope
SE Asia is attractive due to low labour costs.
Was this plan well-founded?
Yes, at the time.
Business Strategy II
How did the plan change over time?
The objectives became a lot broader and more ambitious and started to lose focus
Rapid expansion
Charn wanted to do everything. Design, fabrication, IC assembly and testing, product manufacturing and marketing
Easy money. Charn was quite a persuasive person
The insurance business was meant to generate cash upfront to support his main business??
Alphatech Financial Profile I (these figures were not accurate)
Having two separate book keeping
Highly leveraged company with low liquidity
Decreasing assets T/O
Booking of assets but not completed yet → no sales but the asset based increased
Liquidity
Very low interest coverage
Net income was overstating by $1 billion
Alphatech Financial Profile II (with PW adjustment)
ROE has gone way underwater
Loan-to-equity doubled. From 1.10 to 2.01
What went wrong?
Huge capital expenditure commitments but did not have the cash to support
From 1994-1996 PPE grows by 182%
PPE/Sales goes from 12% in 1992 to 33% in 1996
1996 CAPEX almost 2.1 billion THB
Slowdown in business growth. Sales growth rates:
1992 – 108%
1996 –
How did Charn react to the problems at ATEC?
Cash and dash
Extracts cash through continued dividend payouts (707 million THB in 1995-1996)
Related party transactions, intercompany transfers, “tunneling”
3.95 billion THB unauthorized withdrawals 1994-1997
Seeks subsidies from Thai Government. Krung Thai Bank becomes involved in early restructuring efforts.
Hires Lehman Brothers to raise funds. LB discovers the dirty books and walks away.
Ownership structure: Alphatec Group
A collection of companies related though Charn holding a controlling stake in all of them.
No common parent company
Alphatecs Board