
Microsemi Tops Skyworks' Offer for Chipmaker PMC-Sierra
Microsemi (MSCC) has offered a $2.4 billion bid for PMC-Sierra (PMCS) in a bid aimed at derailing a lower offer from Skyworks Solutions (SWKS) - Get Report .
Aliso Viejo, Calif.-based Microsemi announced Monday that it had submitted an offer to acquire PMC-Sierra for $2.4 billion, or $11.50 per share, in cash and stock. Under the terms of the proposal, PMC-Sierra shareholders would receive $8.75 in cash and 0.0736 of Microsemi stock for each share of PMC-Sierra stock. Net of the target's net cash balance as of June 27, the implied total transaction value is approximately $2.4 billion and the implied enterprise value $2.2 billion.
For PMC-Sierra of Sunnyvale, Calif., the bid from its larger peer comes less than a month after it agreed to be bought by Skyworks Solutions for $2 billion, or $10.50 per share.
In the letter to the board of PMC-Sierra Monday, Microsemi CEO James Peterson wrote that the company has been talking with PMC-Sierra about a merger for the past 18 months.
"We believe the combination of our two companies has tremendous strategic value in addition to cost synergies of approximately $100 million in the first year," Peterson said, adding that Microsemi's proposal is clearly superior to what Skyworks has offered.
He went on to note that a transaction with Microsemi would close in late December and would only be subject to domestic regulatory approvals.
Topeka Capital Markets analyst Suji Desilva said via phone Monday that Microsemi has a more "direct overlap" with the target's business and could derive more sale and R&D synergies than Skyworks.
"Microsemi wants to consolidate the industry, and they're not shy about that," he explained.
The chipmaker shelled out $389 million in March to purchase Vitesse Semiconductor after buying Symmetricom for $230 million in late 2013.
Desilva explained that Skyworks' offer for PMC-Sierra reflects the company's effort to diversify, while Microsemi already has more exposure to the target's area of expertise: building chips for storage- and data center-related products.
It's not clear whether Skyworks will come back with another bid and if so, how much more Microsemi would offer in response. In fact, Desilva suggested that yet another bidder could enter the picture.
Qualcomm (QCOM) - Get Report so far hasn't taken part in the ongoing wave of industry M&A but has expressed interest in enterprise infrastructure, Desilva said, adding that though Avago Technologies (AVGO) - Get Report and Intel (INTC) - Get Report could be interested in PMC-Sierra, the two are busy digesting their respective acquisitions of Broadcom (BRCM) for $37 billion and Altera (ALTR) - Get Report for $16.7 billion.
PMC-Sierra realizes that the industry is in need of consolidation, Desilva said, with growth slowing and scale becoming more important as this capital-intensive industry matures. He added that there is "scarcity value" for the target and other remaining chipmakers that have yet to be acquired.
For that reason alone, PMC-Sierra could become yet another bidding war in the semiconductor sector.
State-owned Chinese chipmaker Montage Technology Group offered $430 million in late September for Pericom Semiconductor (PSEM) , which has a pending $400 million from Diodes (DIOD) - Get Report .
China's Uphill Investment emerged as the winner for Integrated Silicon Solution (ISSI) in the summer following a six-week bidding war with Cypress Semiconductor (CY) - Get Report , paying about $730 million for the company.
Shares of PMC-Sierra rallied nearly 14% Monday morning to $11.65, giving the company a $2.3 billion market capitalization. Shares of Microsemi dropped almost 5% to $35.60, assigning the chipmaker a $3.4 billion market cap. Shares of Skyworks moved down 0.9% to $78.95, giving the company a $15.1 billion market cap.
Microsemi said Monday that it intends to fund the transaction and repay its existing credit facility with existing cash, $2.7 billion new transaction debt and $0.6 billion in Microsemi common stock. Shareholders of Microsemi and PMC will own about 85% and 15%, respectively, of the combined entity.








