Is this the real deal? It was initially reported by The Business Times that Chartered Semiconductor had received a S$2.45b bid from Advanced Technology Investment Company (ATIC) to purchase Temasek Holdings' stake in the independent chip foundry at S$2.40 ? 2.60 per share. Chartered soon came out to clear the air on the very day and said that it had not received such an offer from ATIC. On the very next day, however, The Business Times reiterated its point and wrote another report that talks between Temasek and ATIC regarding Chartered have started, without quoting sources.

An acquisition would be beneficial to Chartered. ATIC is a technology investment firm that was set up in 2008 and fully owned by the Government of Abu Dhabi. ATIC and one of Chartered's key customers ? Advanced Micro Devices (AMD) ? had recently set up a 66:34 joint venture known as Globalfoundries to compete in the chip foundry space. Besides AMD, we believe that this potential acquisition could also result in more tie-ups with IBM and Infineon Technologies, both of which are customers of Chartered.

Impact on Chartered's share price. We believe that Chartered's share price should rise to achieve equilibrium with the "offer price" should the report be true. Assuming that happens, any downside risks to its share price would therefore be very minimal as it should be robustly supported by the "offer price" at S$2.40 which is already higher than its current price.

Valuations. At the reported offer price range of S$2.40 ? 2.60, Chartered is valued at 1.1 ? 1.2x FY09 P/B. Given the improving outlook, we believe Chartered deserves a higher valuation. We therefore upgrade the stock to a BUY with target price of S$2.78 (from S$1.80 previously) assuming Chartered trades up to the 20% discount of the industry average of 1.6x FY09 P/B at 1.28x.