Microsemi Says PMC-Sierra Board Recommends Its Raised Bid

  • PMC deems new offer a `superior proposal,' Microsemi says
  • Microsemi raised cash portion to top rival offer by Skyworks

Microsemi Corp. said its raised offer to buy PMC-Sierra Inc. for $2.3 billion was deemed superior by the target’s board, after a weeks-long bidding war with Skyworks Solutions Inc. for the maker of semiconductors for network drives.

PMC-Sierra’s board has given written notice to Skyworks of its intent to approve or recommend Microsemi’s proposal, which was increased to $12.05 a share on Wednesday, Microsemi said in a statement Thursday. PMC-Sierra will be entitled to terminate its merger agreement with Skyworks, unless Skyworks makes a new proposal within three business days that would cause Microsemi’s bid to no longer constitute a superior offer.

Semiconductor makers have pursued mergers at a record pace this year as surging costs for design and manufacturing, coupled with a shrinking customer base, have created a need to bulk up. Just hours before Microsemi raised its bid on Wednesday, On Semiconductor Corp. announced a plan to buy Fairchild Semiconductor International Inc. for $2.4 billion, the latest in a spate of more than $90 billion of deals in the global chip industry in the past year.

More Cash

Microsemi had increased the cash portion of its offer to $9.22 a share from $9.04 in an Oct. 30 proposal to try to win over a PMC board that had opted for Skyworks’ all-cash proposal because it provided more certainty. The stock component remained unchanged at 0.0771 of Microsemi share for each PMC-Sierra share.

Microsemi’s new offer compares with the all-cash bid of $11.60 a share made by Skyworks last month. The battle over PMC-Sierra started Oct. 5, when Skyworks made a first offer of $10.50 in cash. Microsemi jumped in two weeks later, and the two chipmakers have been trying to outbid each other since. PMC-Sierra shares soared 54 percent during that period, to close at $11.87 Wednesday.

Betsy Van Hees, an analyst at Wedbush Securities Inc., said Skyworks could make a counteroffer.

“They could raise it another 20 cents to $11.80 and the board could deem that to be an offer that they feel to be of value,” said Van Hees, who rates the stock the equivalent of a hold. “They’re going to get a nice breakup fee if their offer is terminated by PMC. They stand to make a nice amount of money, and there are a lot of other assets that are available for them to go out and purchase in that market-cap range.”

Network Drives

A spokesman for PMC declined to comment. Skyworks didn’t return calls and e-mails seeking comment.

PMC-Sierra makes chips that control drives in network equipment, data-center storage systems and mobile-phone networks. The Santa Clara, California-based company, which reported sales declines in two of the past three years, had hired a financial adviser to seek a sale of the company, people familiar with the matter had said.

While PMC’s revenue growth has stalled, it’s a much more profitable company than its would-be acquirer. The company’s gross margin, or the percentage of sales remaining after deducting the cost of production, averages more than 70 percent annually -- one of the strongest in the chip industry. That’s more than 15 percentage points wider than what Aliso Viejo, California-based Microsemi achieved in its latest fiscal year. The average for companies on the Philadelphia Stock Exchange Semiconductor Index was 49 percent in 2014.

Microsemi fell 0.8 percent to $36.69 at the close in New York. The stock has gained 29 percent this year. PMC dropped 0.2 percent to $11.85.

The implied enterprise value of Microsemi’s offer is $2.3 billion, net of PMC’s net cash balance as of Sept. 27.

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