Dialog's Share Decline Makes Counterbid for Atmel More Likely

  • Investors disapprove of premium, funding with debt and stock
  • Atmel had received `very substantial interest,' says CEO

Dialog Semiconductor Plc’s shares slumped 19 percent after the chipmaker unveiled a cash-and-stock deal to buy rival Atmel Corp., reducing the value of its offer and raising the chances that another potential buyer might step in with a counterbid.

Dialog is proposing $10.42 a share for Atmel -- $4.65 in cash and 0.112 of a Dialog American depository share for each stock. Monday’s decline reduces the bid to about $9.26 a share.

“There was very significant interest for the company,” Steven Laub, Atmel’s chief executive officer said on a conference call following the announcement. He didn’t identify any other bidders. The agreement prior to the share slide values Atmel at $4.6 billion.

The chip industry is in the middle of a record year for mergers and acquisitions as companies look to add scale to cope with slowing growth and increasing costs. Atmel, which makes chips used in the automotive industry and in industrial equipment, had also received an approach from China Electronics Corp., according to people familiar with the process.

“Atmel’s a worthwhile asset and people were interested,” said Suji De Silva, an analyst at Topeka Capital Markets Inc. “Those bids might come back into the money.”

Dialog shares fell to 36.75 euros at the close in Frankfurt, the steepest decline since April 2006 and giving the company a market value of 2.9 billion euros ($3.2 billion). Atmel rose 13 percent to $8.19 at the close in New York.

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“What’s happened to the acquirer’s stock today in Europe increases the chances that there will at least be speculation that one of the other bidders that was interested in Atmel might return,” said Keith Moore, a strategist at FBN Securities Inc. “Clearly, the move in the stock has made the offer worth a lot less.”

Investors consider Dialog’s offer for Atmel to be too high, requiring debt and new stock to finance the bid. The deal places a 43 percent premium on San Jose, California-based Atmel, based on the stock’s closing price on Friday. Strategic buyers on average paid a premium of 19 percent in comparable chip-industry transactions in the past 12 months, according to data compiled by Bloomberg.

Reading, England-based Dialog, which supplies chips used in Apple Inc.’s iPhone and iPad, plans to finance the purchase with a combination of existing cash, $2.1 billion in new debt and 49 million American depository shares, or about 38 percent of the enlarged company’s issued share capital.

Sweetheart

Atmel has been soliciting bids for a large part of this year, raising the possibility that other potential buyers already looked at the company and decided they’re not interested, or aren’t willing to pay enough to get a deal done, according to Betsy Van Hees, analyst at Wedbush Securities. An acquisition by a China-based organization would face too many U.S. regulatory barriers, she said, and the risk to the current transaction is that shareholders will vote against it, she said.

“I don’t think they’re going to get a sweatheart deal at a higher price,” Van Hees said. “The risk now is shareholder approval on both sides.”

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