Image source: Siliconware.

What: Shares of Siliconware Precision Industries (NASDAQ: SPIL) are trading 25% higher on Friday, following a tender offer for 25% of the company's shares from Advanced Semiconductor Engineering (NYSE:ASX).

So what: In the early pre-market hours, ASE offered to pay approximately $6.90 per American Depositary Share of its fellow Taiwanese semiconductor packaging and testing specialist. The market reaction leaves another 7% of wiggle room between the tender offer and current share prices. Siliconware investors will have roughly one month to accept the offer, starting on August 24. ASE will stop buying shares once it owns about 25% of Siliconware's shares, since going beyond that level would trigger takeover protection plans and regulatory proceedings.

Now what: At this point, ASE is not interested in a merger or buyout, though that might follow later. Press materials describe the equity buy as "purely a financial investment," and ASE will not demand any changes to Siliconware's operations. In fact, encouraged by strong operational results in the past, ASE expects an "excellent return" on this all-cash investment. This tender offer will use up more than half of ASE's current $1.9 billion in cash reserves.

In the longer term, "ASE is willing to discuss specific details of avenues of cooperation with SPIL's operations team." In other words, this might very well be the first contact ahead of a full-scale merger. And even that could be a springboard toward even larger-scale consolidation:

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

"ASE believes that industry peers in Taiwan should actively search for opportunities to cooperate and integrate resources, in order to protect and further improve the competitive advantage of the Taiwanese packaging and testing industry," the company said.

ASE is by far the larger partner in this relationship, but the company burns cash while Siliconware shows positive free cash flows. ASE is pouncing on weakness in Siliconware's shares, and even the full $6.90 price per share would be 25% below the target stock's 52-week highs.

Given that big gap between recent highs and this offer, many investors are likely to decline and ASE might not end up with 25% of Siliconware's shares. The deal hasn't actually started -- come back on Monday -- so nobody has actually accepted the tender offer yet. Other semiconductor testing and packaging stocks rose only modestly on this news, despite ASE's dreams of integration in this Taiwanese industry.

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