Shares of Skyworks Solutions (SWKS) rose, and those of PMC-Sierra (PMCS) fell, after the former gave up on its pursuit of the latter, which has agreed to be acquired by Microsemi (MSCC) . An analyst from CLSA suggested that the failure to reach a deal is good news for Skyworks, which may now seek out other merger and acquisition opportunities that are a better strategic fit.
WHAT'S NEW: Skyworks announced that it terminated its merger proposal with PMC-Sierra, which subsequently agreed to be acquired by Microsemi in a deal valued at approximately $2.5B. Skyworks said that it takes a "highly disciplined" approach to identifying takeover candidates and that PMC no longer meets its financial criteria at an increased valuation. Skyworks initially made its offer of $11.60 per share on October 29, and Microsemi followed suit a day later with an increased bid of $11.88 per share. Things escalated from there, with Microsemi finally agreeing to acquire PMC for $9.22 in cash and 0.0771 of a share of Microsemi common stock for each share of PMC in a transaction valued at approximately $2.5B and representing about a 77% percent premium to the closing price of PMC shares as of Sept. 30.
BETTER DEALS TO BE HAD: Following the news, CLSA analyst Srini Pajjuri said that it "didn't make much strategic sense" for Skyworks to acquire PMC in the first place due to the PMC's lagging growth over the past three years. Pajjuri argued that abandoning a proposal for PMC was a positive development for Skyworks, which can sustain double-digit organic growth for the next two to three years without a major merger or acquisition. The analyst added that analog/MCU firm acquisitions offer a better strategic fit for Skyworks and named Silicon Labs (SLAB) , Monolithic Power (MPWR) , Semtech (SMTC) , MaxLinear (MXL) , and Inphi (IPHI) as possible targets. Pajjuri kept an Outperform rating and $92 price target on Skyworks' stock.
PRICE ACTION: In morning trading, Skyworks rose 1% to $78.52, PMC-Sierra slid 2% to $11.61 and Microsemi fell 7.9% to $33.36. Meanwhile, Silicon Labs gained 2.2%, MaxLinear rose 2.4%, Monolithic Power was flat, and Semtech and Inphi were marginally lower.
Reporting by Sam Martinelli.