Micron Technology

(MU) - Get Report

has signed a memorandum of understanding to buy the memory business of Korean DRAM producer Hynix. The deal would make it the leader in memory chips used in PCs.

If the terms of the nonbinding MOU hold, Boise, Idaho-based Micron will pay $200 million in cash and 108.5 million shares and will receive 15% of Hynix's non-memory business as well.

At Monday's closing price of $30.51 per share, the deal is worth $3.5 billion. Hynix's Korean creditors also agreed to provide $1.5 billion in loans to upgrade the company's DRAM production. Needham analyst Dan Scoval said the deal will require approval by Hynix creditors and the boards of both companies by the end of the month. Scoval rates Micron a buy, and his company has not done banking for the memory maker.

If the deal is completed, Micron would be the world's DRAM leader, with 40% of the market. The next-largest producer, Samsung, holds about 25% to 30% of the market, Scoval said. The company would own 50% of the DRAM market in China.

DRAM, or dynamic access random memory, handles the actions of PC applications. DRAM prices have slumped along with the price of PCs over the past year.

But DRAM prices appear poised for something of a comeback. In reiterating his buy rating on Micron today, UBS Warburg analyst Thomas Thornhill said the Hynix buy would put Micron in a position to benefit from a price increase. On Monday, Morgan Stanley raised its rating on the stock.

Thornhill estimates the acquisition would add 15 cents to 20 cents a share in value to Micron next year. His firm has not done banking business with Micron.