Chipmaker Microsemi offers $2.4-bn rival bid for PMC-Sierra

Igniting a bidding war, US semiconductor solutions provider Microsemi Corp has tabled a superior $2.4-billion offer over rival Skyworks Solutions Inc to acquire PMC-Sierra Inc, a maker of semiconductors for network drives, aiming to accelerate the company's data center growth plans.

Microsemi's $11.50 a share cash-and-stock offer for PMC based on the latter's Friday's closing price of both the stocks, is 9.5-per cent higher compared to the $10.5 per share bid from Massachusetts-based Skywork, and represents a 50-per cent premium over PMC's stock price on 5 October, the day prior to the disclosure of Skywork's offer.

Microsemi will pay $8.75 in cash and 0.0736 shares of Microsemi for each share of PMC, with a total transaction value of around $2.4 billion, and enterprise value of $2.2 billion, net of PMC's cash in hand.

Further to the news, shares in PMC-Sierra surged almost 15 per cent to $11.73, while Microsemi stock fell over 5 per cent to $35.33 yesterday in New York. Skyworks dropped over 2 per cent to $77.83.

Microsemi chief executive officer James Peterson said on a conference call, ''We expect to prevail because our proposal is far superior and will deliver more value to PMC shareholders.''

''PMC needs ''a stronger, more definitive management team that could take the company to the next level, and that's what Microsemi does,'' he added.

California-based PMC is a semiconductor and software solution provider for networks that store big data. Its products are used in various applications of storage and communications network equipment used in cloud data centers, carriers and enterprises.

For the June quarter, PMC reported a loss of $8.5 million compared to a $3.5-million loss a year ago. Revenue was down almost 2 per cent at $125 million from $127 million last year.

Microsemi, also California-based, provides semiconductor and system solutions for communications, defence and security, aerospace and industrial markets. Its products include mixed-signal integrated circuits, power management products, synchronisation and precise time solutions, RF solutions, discrete components among others.

Microsemi, which reported sales of $1.1 billion for the year ended September 2014, expects annual revenue of $1.75 billion through the combination.

"This acquisition will provide Microsemi with a leading position in high performance and scalable storage solutions targeted for data center and cloud applications, while also adding a complementary portfolio of high-value communications products,'' Peterson said.

Microsemi expects the transaction to be immediately accretive to its earnings and free cash flow and expects more than $0.60 per share in the first full year.

The company hopes to achieve annual cost synergies of over $100 million post acquisition.

Microsemi intends to fund the transaction and repay its existing credit facility with cash in hand, $2.7 billion in new transaction debt and $0.6 billion in Microsemi common stock.

Microsemi intends to close the deal by the end of this year.

Upon closing, Microsemi shareholders will own 85 per cent of the merged entity, while PMC shareholders will own the rest.

The transaction is subject to customary closing conditions and domestic regulatory approvals only, whereas any transaction with Skywork would involve approvals by foreign governments including China, Microsemi said.

Stifel is acting as exclusive financial adviser to Microsemi on the deal.