Synaptics Deal in Doubt After Poor Earnings Rattle Shares

Updated on
  • China-backed buyer no longer in active talks for chipmaker
  • Synaptics shares down 18 percent since April 28 earnings

Synaptics Inc. and a Chinese buyer group are no longer in active discussions about a deal, according to people familiar with the matter, after the San Jose, California-based chipmaker in April missed earnings and sales estimates from analysts, sending its shares tumbling.

While takeover discussions could restart after Synaptics’s next earnings results, the two sides may decide not to return to the deal, said the people, who asked not to be identified because the discussions are private.

The Chinese buyer group, which includes Beijing E-Town International Investment & Development Co., an investment arm of the Chinese capital, and China’s government-sponsored National Integrated Circuit Industry Investment Fund Co., held talks about a deal around $110-per-share for Synaptics, people familiar with the matter said in September and earlier this year.

Synaptics shares fell as much as 6 percent, and traded down 5 percent as of 10:16 a.m. in New York, giving the company a market value of about $2.3 billion.

Value Differences

Through Monday’s close, the stock fell about 18 percent since April 28, when Synaptics forecast fourth-quarter revenue of $300 million to $340 million, well below the analyst average estimate of $479 million. The company also fell short of third-quarter revenue and earnings estimates. The dip in Synpatics shares caused the two sides to take a break from deal talks due to differences in perceived valuation, the people said.

“We experienced a sizable revenue shortfall during the March quarter that will also carry over into fiscal Q4,” Chief Executive Officer Rick Bergman said during the company’s earnings conference call April 28. “We saw a precipitous drop in order levels within the smartphone market, specifically centered around our display driver customers. In addition, our PC business was weak, as anticipated.”

A representative for Beijing E-Town declined to comment. Contact details for the National Integrated Circuit Industry Investment Fund couldn’t immediately be located. Synaptics CEO Bergman declined to comment.

Chinese Buyers

Chinese companies have been acquiring overseas technology assets to boost domestic capabilities and replace imports. In February, Ingram Micro Inc., a computer, networking and software distributor, agreed to be acquired by China’s Tianjin Tianhai Investment Co. for an equity value of $6 billion.

Acquirers based in or backed by China have accounted for about 24 percent of all global deal volume this year, an increase from their usual annual output of about 10 percent, according to Goldman Sachs Group Inc.’s global co-head of mergers and acquisitions Gregg Lemkau.

They’re set to continue that drive, Lemkau said Monday on Bloomberg TV, with regulatory concerns unlikely to deter Chinese companies from targeting U.S. and European deals worth more than $10 billion.

— With assistance by Ian King

(Adds shares in fourth paragraph.)
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