Lexar Deal Gets Its Due

Updated from 4:44 p.m. EST

Lexar Media(LEXR) had merger talks with 11 different companies, but only two firms, including eventual winner Micron(MU), made formal bids.

In a much-anticipated Securities and Exchange Commission filing Tuesday, Micron and Lexar laid out the background of a controversial sales process that culminated with Micron's offer to acquire Lexar on March 8. The deal has drawn opposition from a group of hedge funds, claiming that it significantly undervalues Lexar.

Meanwhile, Lexar's warning on Tuesday that first-quarter revenue could be as much as 50% below Wall Street expectations underscores the company's difficulties of continuing operations as an independent entity.

Together, the dual filings cast doubt on activist shareholders' contention that Lexar is worth significantly more than what Micron has offered to pay for it.

In late trading, Lexar was recently off 72 cents, or 7.73%, to $8.60. Shares of Micron were off 2.2%, or 33 cents, at $14.44.

According to the filing, Lexar explored a potential buyout with the help of investment banking firm Deutsche Bank for about a year before the Micron announcement. Last November, Lexar received an offer of $8.75 a share from an unnamed company, but the deal fell through because of the offer's timing terms and antitrust concerns.

That offer would have put a higher price tag on Lexar than Micron's, which valued Lexar shares at $8.43 on the day it was announced, based on Micron's stock price at the market's close that day. Under the terms of Micron's acquisition, each Lexar share will be worth 0.5625 of a Micron share.

CIBC World Markets analyst Daniel Gelbutch said that while the other deal was slightly richer than Micron's, it's a far cry from the $10-plus a share that he says opponents of the deal believe Lexar could fetch.

"The bottom line is it looks like management didn't just willy-nilly sell it to serve their interests," said Gelbtuch, whose firm makes a market in Lexar securities. "They spoke with everyone in the field who is a potential buyer, and no one stepped up to the plate to offer something higher."