Montage Buyout Comes With Familiar Allegation

NEW YORK (The Deal) -- Montage Technology Group (MONT) is the latest China-based company to receive a buyout proposal and an attack by a short seller.

Montage makes fabless mixed-signal semiconductors with applications in set-top boxes for home entertainment and memory interface with cloud server applications.

The company received an offer Monday from Shanghai Pudong Science and Technology Investment Co. Ltd. PDSTI is based in Shanghai and funded by the Shanghai government. The technology investor said in a letter to Montage that subject to due diligence it offers $21.50 per share for Montage, which it described as a 34% premium to the Shanghai company's 20 trading day average price.

Montage said it would review the proposal.

The unsolicited offer came on the heels of a Montage share slump following allegations from a short sale report from Gravity Research that Montage's revenue recognition was fraudulent. Gravity began coverage of Montage on Feb. 6 and has claimed that an entity presented as an independent sales and distribution company of Montage chips and representing about 70% of Montage revenues is a shell subsidiary of the company that likely inflates revenues. Gravity alleged, among other things, that the distributor, LQW, has assisted its parent in gross margins from 2010 to 2011, for example, by an improbable 100% with revenue gains of 73% and a modest increase in cost of sales.

The Gravity reports in early February sent Montage shares down to $16 per share from a range of $22 to $25.

On the news of the bid from PDSTI, Montage shares traded up about $3.65, or 21%, to $20.80 at a slight spread to the offer.

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