Orange County Business Journal

Microsemi Files Against Zarlink’s Shareholder Rights Plan

Chris Casacchia Monday, September 19, 2011

Aliso Viejo-based chipmaker Microsemi Corp. is challenging a takeover defense that would make it more difficult and costly to acquire Zarlink Semiconductor Inc. in Ottawa, Canada.

Microsemi confirmed Monday its opposition to Zarlink’s shareholder rights plan that was adopted in late July.

The Ontario Securities Commission, Canada's primary securities regulator, is scheduled to hear Microsemi’s challenge on Oct. 3 and Oct. 4.

The so-called “poison pill” strategy attempts to make shares of stock less attractive for a potential acquirer.

On July 25 Zarlink adopted the shareholder rights plan, which allows existing investors to buy shares at discount, thereby diluting the shares and the acquirer's voting interests in the target company.

The strategy, often used in potential takeovers, would be triggered when a shareholder buys 20% or more a company, and allows more time to weigh other offers and finalize its decision.

“The rights plan is intended to ensure that Zarlink has time to bring its previously announced process to its conclusion for the benefit of shareholders and debentureholders,” Zarlink's Chairman Adam Chowaniec said.

Last month Microsemi put in a $548.7 million cash bid to acquire Zarlink in a hostile takeover.

The bid values Zarlink at $3.35 per common share, a premium of about 40% based on the closing price on the Toronto Stock Exchange July 19, the last trading day before Microsemi announced its offer.

Microsemi took the bid directly to shareholders after Zarlink’s board turned down two earlier offers, according to Microsemi Corp. Chief Executive James Peterson.

Zarlink’s board rejected the last offer and urged its shareholders to follow suit, contending the offer “significantly” undervalues the company and is “inadequate” for shareholders.

Since then Chowaniec has said there is a field of interested bidders but declined to name any.

Peterson said the chipmaker will pull its $548.7 million cash bid for Zarlink off the table at midnight on Sept. 22 if a deal isn’t struck.

Peterson told the Business Journal earlier this month that Microsemi is steadfast on the expiration date and isn’t interested in negotiating with Chowaniec.

Microsemi is Orange County’s third-biggest chipmaker by sales and reported about $520 million in revenue for the 12 months through October.

It’s a frequent acquirer, and buys are key to the company’s current goal of doubling revenue.

Microsemi’s chips serve a variety of military, aerospace, consumer and industrial uses. Its products are built into satellites, digital televisions and other devices. Customers include Cisco Systems Inc., Boeing Co., Hewlett-Packard Co., Dell Inc. and Samsung Electronics Co.

Interest in Zarlink stems from the company’s inroads in the communications and medical markets—two key segments of Microsemi’s growth plan.

Zarlink makes chips used by telecommunications and cable companies for bundled voice, video, data and mobile services. It counts on the communications sector for about 80% of its business and the medical sector for most of the rest.

Its medical business makes ultra low-power radios for devices such as pacemakers.

Microsemi’s shares close down about 2% Monday to a market value of $1.46 billion.