In the end, Jazz Semiconductor Inc. may get the best of all worlds: a $260 million buyout, entry into the public markets and an aggressive chairman, all via novel suitor Acquicor Technology Inc.
Late last month, Acquicor said it plans to pay cash for Newport Beach chip plant operator Jazz in a deal expected to wrap up in the first quarter. Jazz twice had filed to go public on its own.
“Our company has grown significantly,” said Shu Li, Jazz’s chief executive. “It’s a strategic move for us, to fund our access to capital.”
For its part, executives at Newport Beach-based Acquicor say they got a financially solid company with growth prospects.
Acquicor, a “blank check” company formed to buy a technology business, came calling after raising about $173 million in a March public offering.
The company is backed by three high-profile former Apple Computer Inc. executives: Apple cofounder Steve Wozniak, former chief executive Gil Amelio and Ellen Hancock, Apple’s technology chief under Amelio.
Acquicor went public to raise money for an acquisition. By buying Jazz, Acquicor’s shares will trade as if they were Jazz’s. Acquicor shareholders still must approve the deal. Wachovia Corp. is funding part of the buy.
The deal could include future contingency payments in addition to the $260 million, Acquicor said.
With that wad of cash, Jazz gets more than it was seeking from Wall Street, which wasn’t all that excited about Jazz in the first place.
Jazz was in the midst of its second shot at an initial public offering aiming to raise $105 million. Jazz filed for its first offering of $150 million in early 2004, but never made a go of it.
Jazz boss Li said he liked the idea of raising money and going public via Acquicor,without the hassle and distractions of doing its own offering.
“With this it’s a much quicker and simpler way to (get) the company public,” he said. “The IPO requires a lot of bandwidth.”
Li and Amelio declined to talk about the difference between what Acquicor’s paying and the smaller amount Jazz was looking to raise in an offering.
Len Jelinek, an analyst with research firm iSuppli Corp. in El Segundo, said “being a small foundry that has limited expansive capacity” didn’t exactly position Jazz well for “an aggressive initial public offering.”
Jazz was a good company for Acquicor, Amelio said.
“We felt that we were able to (negotiate) a good price, not a spectacularly good price, but a good price,” he said. “We think the folks here have done a terrific job.”
Amelio has big plans for Jazz, which did nearly $200 million in sales last year. Acquicor always wanted to expand the business it ended up buying to $1 billion in annual revenue, and though Amelio wouldn’t give a time frame, that could happen with Jazz, he said.
Amelio stays as chief executive of Acquicor and becomes chairman of Jazz. Li remains chief executive of Jazz.
Amelio’s expected to be an active chairman. Earlier in his career, Amelio ran what became Newport Beach-based Conexant Systems Inc. Jazz is Conexant’s former chip factory that broke off in 2002.
“I’m sort of the gray beard that provides the adult supervision,” he said. “I plan to be actively involved and working with Shu Li. I intend to play a significant role in helping him with customers.”
He said he expects to work in a “collegial way” and help with issues such as Sarbanes-Oxley regulations as part of being a public company.
Li said he welcomes Amelio’s help.
“Gil will guide the business in strategy and execution,” Li said.
Amelio also plans to go out and get more money to help expand the company.
“We also will be looking to grow and to buy additional assets, perhaps wafer fab capacity, perhaps some … technology and any other way we can expand the business,” he said.
ISuppli’s Jelinek said he wouldn’t be surprised if the company went after a chip designer. Although Jazz does advanced chip making, getting patents from a chip designer could keep Jazz from becoming just a maker of commodity chips.
Jazz needs to expand capacity because it’s nearly full at its major site in Newport Beach, which is hemmed in by other businesses, Jelinek said.
One way the company has expanded production is through ties to a couple of Chinese chipmakers, which now make up about 20% of Jazz’s output.
The China ties, which began a few years ago, have helped make Jazz more than just a single plant operator and more of a global company.
“The goal of Jazz is to build itself into a truly global business,” Amelio said.
Amid falling prices, the contract chipmaker posted a net loss of $726,000 during the first quarter, down from a $7.1 million loss a year ago. Jazz posted a $3 million profit in the fourth quarter.
First-quarter revenue improved, climbing 13% to $55.9 million from a year earlier and up 1% from the fourth quarter.
The company also made progress in a key bid: gaining business besides that of Conexant and another offshoot, Woburn, Mass.-based Skyworks Solutions Inc.
In 2005, 60.5% of revenue came from Conexant and Skyworks. In the first quarter of this year, their share was 56%.
Jazz makes silicon wafers,the raw material for chips,that big chip plants tend to ignore. Chips made from the wafers go into wireless handhelds and consumer electronics. The chips are based on a format called CMOS, or complementary metal-oxide semiconductor.
“This is pretty specialized,” Jelinek said. “They have a unique technology that’s not easily installed by the big foundries.”
Amelio sees big possibilities for Jazz in the wireless devices and consumer electronics.
“We think the technology that resides here can address the whole spectrum of the market,” he said. “We, fortunately for us, found that there was a great opportunity for us here in Orange County.”
