Jim Peterson’s 31st deal at the helm of Microsemi Corp. will likely be his last, cementing a legacy that extends well beyond Orange County’s business community.
Peterson, who took the top management post in 2000 at the Aliso Viejo-based chipmaker, is an A-lister in philanthropic circles and corporate engagement.
Consider the long list of nonprofits and educational centers the company has supported under his watch: MIND Research Institute, Discovery Cube Orange County, Court Appointed Special Advocates of OC; Talk about Curing Autism; Project Hope Alliance; Pacific Symphony; Mission San Juan Capistrano; and The Academy Charter High School, a community project of Orangewood Children’s Foundation.
Then there are the board commitments, a roster that has included University of California-Irvine Board of Trustees; UCI’s Engineering Industry Advisory Board and Paul Merage School of Business Advisory Council; Chapman University’s Board of Trustees; and SOKA University in Aliso Viejo.
Add corporate sponsorships at the Honda Center, Angel Stadium and Pacific Symphony.
Microsemi, a gold sponsor at the recently concluded Toshiba Classic at Newport Beach Country Club, hosted the third annual Military Appreciation Day on March 10, when 3,000 military family members received free admission.
The company welcomed the Los Angeles Rams to town in 2016, taking naming rights to their practice and training facility at UCI. The one-year sponsorship cost $100,000, according to a contract obtained by the Business Journal.
Peterson, who became board chairman in 2013, has overseen 27 acquisitions and three divestitures during his tenure, but Microsemi’s pending $10.1 billion sale to Microchip Technology Inc. in Chandler, Ariz., highlights his run as a dealmaker.
The sale price of $68.78 per share represents a 7% premium on Microsemi’s share price at the close of trading on March 1, the day the deal was announced. It’s a 33% premium on the Jan. 1 price, when wise guys started chirping.
The boards of each company unanimously approved the deal. It’s expected to close next quarter. A higher bid seems unlikely, and the deal shouldn’t run into regulatory hurdles since both companies are headquartered in the U.S., mitigating national defense and intellectual property concerns, given Microsemi’s long ties to the defense and aerospace industries.
“I wouldn’t bet on it,” Microsemi’s vice president of corporate development, Rob Adams, told the Business Journal. “I would expect this to get done.”
Buy, Buy, Buy
The chipmaker under Peterson has undergone a diversification effort in the communications, Internet of Things and data center segments to augment its legacy positions in the military, industrial and aerospace sectors.
The company in December acquired the timing-device business of Vectron International for $130 million, just a month after it was announced. New Hampshire-based Vectron, part of the Knowles Corp. in Itasca, Ill., specialized in designing and manufacturing frequency controls, sensors and hybrid technologies for telecommunications, data communications, frequency synthesizers, and timing, navigation, military, aerospace, medical and instrument systems.
Peterson closed his biggest buy in January 2016, a $2.5 billion deal for PMC-Sierra Inc. Microsemi acquired the Sunnyvale-based chipmaker, which specialized in chips geared for server applications and the world’s largest big-data aggregators, after a two-month bidding war against Skyworks Solutions Inc., which is run from Irvine but incorporated in Woburn, Mass.
Microsemi unloaded some unwanted business units following the PMC-Sierra deal.
The company in October 2011 completed a $633 million buy of Canadian chipmaker Zarlink Semiconductor Inc., finalizing a rare hostile takeover.
The transaction ended a testy courtship and marked the only hostile takeover in the chip sector since 2000, according to New York-based Capital IQ, a unit of Standard & Poor’s.
Zarlink had rejected three of Microsemi’s earlier bids and urged its shareholders to oppose the takeover, but Microsemi boosted its bid by 19% to $3.98 per share, earning investor approval.
The Zarlink buy provided the company inroads into the communications and medical markets—two key segments in its growth plan—and put Microsemi on a clear path to reaching Peterson’s long-held goal of $1 billion in annual revenue and joining the upper ranks of the mixed-signal chip market.
Microsemi posted record sales of $1.8 billion in the 12 months through September—the end of its fiscal year—up 9.5% from a year earlier. Net income hit $176.3 million—also a record—compared to a loss of $32.6 million the year before.
Its chips are built into satellites, drones, digital televisions, defibrillators, pacemakers and other devices made by the likes of Boeing Co., Hewlett-Packard, Dell Inc. and Samsung Electronics.
The offerings and end-markets compliment Microchip’s strong presence in the industrial, auto and home appliance segments. Nearly a third of its $3.4 billion in sales in the 12 months through March 2017—the end of its fiscal year—were generated in China. International business accounted for about 82% of total revenue. It posted net income from continuing operations of $170.6 million.
Microsemi and Microchip share little overlap, and had little interaction before recent negotiations, according to Adams.
“The Street seems to like the deal,” he said.
Legacy
Microsemi entered 2018 as OC’s fourth-largest chipmaker, with about 230 local workers, a number that will likely decrease after the deal closes. Microchip anticipates saving $300 million in the third year after the close of the transaction, a likely mix of shedding redundant corporate and administrative positions, and cuts in research and development—hallmark areas on the chopping block following a sale.
Microchip plans to finance the transaction with approximately $1.6 billion cash from the combined companies’ balance sheets, $3 billion from Microchip’s existing line of credit, $5 billion in new debt and a $600 million bridge loan.
Peterson, 62, has a big persona here and on Wall Street, where he’s commonly referred to as “Jimmy P” by analysts and the money crowd. Good reason. The Jimmy P era is marked by a thirtyfold increase in the equity value over the period he presided over the company.
His company is also an OC flag bearer.
The latest round of global consolidation to hit OC will certainly sting the region in the coming years, from talent pools and venture capital to corporate sponsorships and charitable giving.
“Obviously, Jim was a big character behind the history here in Orange County,” Adams said.
A changing of the guard is under way, but there’s legitimate concern that OC lacks a deep bullpen of up-and-coming technology executives with the moxie and experience to create another $10 billion company, or one as influential and civic-minded.
