(Yicai) June 10 -- Chinese chip developer Hygon Information has proposed a CNY116 billion (USD16.1 billion) merger to absorb Dawning Information Industry, its largest shareholder and major client, which would make it the biggest-ever consolidation in China’s computing power sector.

Each one of Dawning's shares will be converted into 0.55 shares of Hygon at a price of CNY79.26 (USD11.03) and CNY143.46 (USD19.96), respectively, Beijing-based Hygon announced late yesterday.

The deal will be a benchmark for the country’s computing power sector, according to Central China Securities. The new company can achieve full industry chain localization and deepen integration across the supply chain, the brokerage said, adding that Hygon is at a critical point in its research and development, so the merger will also boost the adoption of its chips across the industrial chain.

Once the merger is completed, Dawning will be delisted, and Hygon will continue to focus on its core business while inheriting all of Dawning’s assets and operations. As a result, Hygon will expand its downstream business matrix, enhancing the ecological synergy between its high-end chip and complete system solution businesses.

The shares of both companies surged today, following a 10-day trading halt after Hygon first unveiled the merger plan on May 25. Hygon [SHA: 688041] closed 4.3 percent higher at CNY141.98 a share in Shanghai, while Dawning [SHA: 603019] surged by its 10 percent daily trading limit to end at CNY68.09 (USD9.47).

The pair have market capitalizations of about CNY327.9 billion (USD45.6 billion) and CNY99.6 billion (USD13.9 billion), respectively.

Hygon mainly focuses on developing high-end computing chips. Founded in 2014, it went public on Shanghai’s Nasdaq-like Star Market in August 2022.

Its net profit surged 75 percent to CNY506 million (USD70.4 million) in the first three months from a year earlier, while revenue climbed 51 percent to CNY2.4 billion (USD333.9 million), according to Hygon’s latest financial report.

Dawning was founded by the Institute of Computing Technology under the Chinese Academy of Sciences. Also based in Beijing, the company researches, develops, and makes supercomputers, data centers, and storage systems.

In the three months ended March 31, its net profit jumped 31 percent to CNY186 million (USD25.9 million), while revenue rose 4 percent to CNY2.6 billion.

Editor: Futura Costaglione