Elliott Management Challenges Dialog's Planned Atmel Deal

  • The hedge fund controls a 2.9 percent stake in Dialog
  • Chipmaker buy part of record year for semiconductor purchases

Activist hedge fund Elliott Management Corp. is fighting Dialog Semiconductor Plc’s planned $4.6 billion purchase of Atmel Corp., calling the acquisition too expensive and too great a risk ahead of a shareholder vote this month.

Elliott, in a letter to shareholders Monday, urged investors to vote against the deal, which it said will destroy Dialog’s value. The hedge fund said it controls 2.9 percent of the voting rights of the Reading, England-based chipmaker.

Atmel’s revenue declines will lower the value of Dialog in a combination and, since the two companies have relatively little overlap, cost savings will be difficult to come by, Elliott said in the letter. Elliott, run by hedge-fund billionaire Paul Singer, has targeted everything from government bonds to retail companies in the past few years as it works to squeeze additional value out of deal terms and lagging company shares.

“We strongly believe that any acquisition must have a solid strategic rationale, be value creative for Dialog shareholders and that the level of value creation should be carefully weighed against the associated risks,” Elliott said. “This deal falls considerably short against these criteria.”

A spokesman for Dialog declined to comment on Elliott’s letter. Agnes Toan, an Atmel spokeswoman, didn’t immediately return messages seeking comment.

Broader Customers

Chief Executive Officer Jalal Bagherli needs the merger to differentiate Dialog’s customer base. Sales to Apple Inc. now make up about 78 percent of the company’s revenue, according to data compiled by Bloomberg. Atmel makes chips to supply the auto industry as well as the Internet of things. Dialog’s bid to combine with Austria’s AMS AG fell apart last year. Still, the deal with Atmel will cost the company more than its current market value.

Shareholders have punished Dialog’s stock, sending the price down 16 percent since the day before the deal was announced. It values Atmel at 33 times its earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. That compares with an average value of 16 times Ebitda in semiconductor acquisitions in the last 12 months, according to the data.

Dialog investors will get a chance to approve the deal in a meeting scheduled on Nov. 19. The company needs a simple majority of the ordinary shares present and voting in person or by proxy to go ahead with the acquisition of San Jose, California-based Atmel. Dialog has said it expects the purchase to be completed in the first quarter of next year, as long as it gets regulator and shareholders’ approval.

Chipmaker Mergers

It has been a record year for semiconductor deals, as chipmakers combine to counter slowing growth and increasing costs. Intel Corp. agreed to buy Altera Corp. for $16.7 billion in June to defend its presence in data centers. Dutch chipmaker NXP Semiconductors NV agreed to acquire Freescale Semiconductor Ltd. for about $11.8 billion in cash and stock in March to cut costs and expand in chips for cars.

Elliott is known for aggressive tactics and legal maneuvers, once even temporarily seizing an Argentine naval ship to pressure the country to pay what it owed in a dispute over defaulted bonds.

“Should the transaction not be consummated, Elliott recommends that Dialog establish a committee of the board to examine all capital allocation options open to the company,” the hedge fund said in the letter. “Value creative transactions which fulfill the company’s strategic aims would be our preference –- however, if Dialog cannot find attractive acquisition targets at appropriate prices then the alternative is to return capital to its shareholders –- not to pursue overpriced transactions.”

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