Aliso Viejo-based chipmaker Microsemi Corp. is confident its record $2.2 billion bid last week to acquire PMC-Sierra Inc. will stand against competitor Skyworks Solutions Inc.
The proposal, which represents a 50% premium based on the closing price of PMC’s shares on Oct. 5, trumps a $2 billion offer for the Sunnyvale-based company made earlier this month by Woburn. Mass.-based Apple supplier Skyworks.
“We think that it’s a superior proposal,” said Microsemi’s vice president of corporate development, Rob Adams, who traveled to New York last week with Chief Executive Jim Peterson to drum up support for the deal. “We’ve got them on value, speed and certainty, and that matters.”
PMC has until Oct. 29 to respond to the proposal. Its board is recommending the deal with Skyworks to shareholders.
“I wouldn’t worry too much about it,” Adams said. Microsemi’s bid “could lead to a superior proposal. They just have to review it.”
Microsemi intends to fund the transaction and repay its existing $998 million credit line with cash on hand, $2.7 billion in new debt, and $600 million in Microsemi common stock. Microsemi shareholders would own about 85% of the combined company, PMC investors 15%.
China
The chipmaker projects that the transaction would lead to $100 million in annual cost savings and a profit boost of $57.2 million in the first 12 months after the deal closed. The company has emphasized the transaction is subject only to U.S. regulatory approvals and doesn’t need a nod from China, unlike Skyworks’ proposal.
Regulators in the world’s most populous country tend to delay such action in what’s become a growing concern on Wall Street and evident in Irvine-based Western Digital Corp.’s $4.8 billion buy of HGST Inc., which closed in March 2012 but didn’t see approval from China to integrate the San Jose-based company until last week (see related story, page 1).
“We don’t have to jump through all the China regulatory hoops that they would otherwise,” Adams said. “And in this macro-environment, that’s a certainty. We think that’s a big advantage.”
Microsemi also has emphasized that the transaction could close as quickly as year’s end if PMC’s board moves quickly.
Company and industry watchers should get more clarity this week when PMC is scheduled to file a proxy statement with the Securities and Exchange Commission outlining the names of other potential bidders and related timelines.
Adams downplayed the possibilities of other suitors.
“I’d be surprised to see any more bidders,” he said. “We’ve been engaged here for 18 months.”
Wall Street
Wall Street was mixed on whether counter bids will enter the process.
Oppenheimer & Co. said it considers a counter bid from Skyworks “unlikely” and that it anticipates “few hurdles given the size of the deal and limited product overlap.” Sterne Agee Group Inc. and Citigroup Inc. analysts said they believe Skyworks will come back with a second offer.
PMC, which reported $525.6 million in revenue last year, would add products to Microsemi’s established lines of communication chips and related software. But, far more importantly, it would pave a path into the red-hot data storage market, furthering Microsemi’s ongoing diversification from its legacy of discrete power chips used by the defense and industrial sectors.
“It would really jumpstart that storage business for us,” Adams said. “The real buzzword is data center. We’re excited about the growth of hyperscale storage in data center applications.”
Storage products account for about 70% of PMC’s annual revenue. Search giant Google Inc. is a customer, as are some of the world’s largest big-data aggregators.
Microsemi—OC’s second largest chipmaker, with $1.1 billion in annual revenue—acquired some storage assets through last year’s buy of Santa Rosa-based chipmaker Centellax Inc. on undisclosed terms and April’s $389 million deal for Vitesse Semiconductor Corp. in Camarillo.
Centellax makes high-speed and RF chips and related components for the optical communications and Ethernet data markets. Vitesse specializes in high-performance chips, application software, and integrated turnkey systems for global telecom carriers, enterprise, and Internet of Things networks.
Microsemi has been a frequent buyer under Peterson, rolling up 24 companies since he took the helm in 2000.
And the company is no stranger to tussling in the ring. In Microsemi’s $632 million hostile takeover of Canadian rival Zarlink Semiconductor Inc. in 2011, the latter rejected three of Microsemi’s earlier bids and urged shareholders to oppose the takeover. Microsemi boosted its winning offer for Zarlink’s shares by 19% to land its priciest acquisition to date.
“We promised our shareholders prudence as it relates to bidding or a potential bidding war,” Adams said. “We hope it doesn’t get too testy.”
