PMC-Sierra (PMCS) Stock Falls After Microsemi Wins Takeover Bid

NEW YORK (TheStreet) -- PMC-Sierra  (PMCS) stock is falling by 2.36% to $11.48 in mid-morning trading on Tuesday, after Microsemi (MSCC) announced it was buying the semiconductor company for $2.5 billion. 

Microsemi, which is a semiconductor company based in Aliso Viejo, CA, is acquiring PMC-Sierra for a 77.4% premium to the closing price of its stock on September 30, the companies announced today.

"This acquisition will provide Microsemi with a leading position in high performance and scalable storage solutions, while also adding a complementary portfolio of high-value communications products," Microsemi CEO James Peterson said in a statement. "As we integrate the team and drive profitability, our combined company will benefit from increased scale, industry-leading margins, diversified market exposure, consolidated infrastructure and substantial cost savings."

Microsemi stock was down by 7.71% to $33.42 in mid-morning trading on Tuesday.

Additionally, Microsemi's acquisition ended Skyworks Solutions' (SWKS) competing bid for PMC. The company said it was entitled to an $88.5 million termination fee from PMC.

Separately, TheStreet Ratings team rates PMC-SIERRA INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate PMC-SIERRA INC (PMCS) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 22.7% when compared to the same quarter one year prior, going from $5.47 million to $6.72 million.
  • PMCS's debt-to-equity ratio is very low at 0.05 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.37, which illustrates the ability to avoid short-term cash problems.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 10.9%. Since the same quarter one year prior, revenues slightly dropped by 1.4%. Weakness in the company's revenue seems to not be hurting the bottom line, shown by stable earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, PMC-SIERRA INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $15.37 million or 31.54% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, PMC-SIERRA INC has marginally lower results.
  • You can view the full analysis from the report here: PMCS

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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