Microsemi, the acquisitive RF semi-conductor developer for the defence and aerospace industries, is finally to purchase its Canadian peer Zarlink Semiconductor for approximately US$525m.
The agreement between the board of directors of both companies…
Microsemi, the acquisitive RF semi-conductor developer for the defence and aerospace industries, is finally to purchase its Canadian peer Zarlink Semiconductor for approximately US$525m.
The agreement between the board of directors of both companies brings to an end a protracted sales process that began in January 2011 and at times threatened to get ugly with the Zarlink board twice publically rejecting Microsemi’s unsolicited offers within the space of two months.
Under the terms of the amended offer, Microsemi is seeking to acquire in cash all of the outstanding common shares and 6% unsecured, subordinated convertible debentures of Zarlink for C$3.98 per share and C$1,624.49 per C$1,000 principal amount of debentures.
The offer price represents a premium of 67% over the closing price of Zarlink’s shares and a 48% premium over the closing price of its debentures on 19 July, 2011, the day prior to the initial public announcement of Microsemi’s proposal to acquire Zarlink. The amended offer is approximately 19% higher than the July offer.
Commenting on the acquisition, James Peterson, Microsemi’s president and CEO said: “Despite a rough start, I am extremely pleased to announce today a friendly transaction to the benefit of both Microsemi and Zarlink shareholders. Once we have engaged with Zarlink on better terms, our diligence revealed it to be worth the wait, worth the worry, and definitely worth the price.”
Adam Chowaniec, Zarlink’s chairman added, “After careful consideration of strategic alternatives, protracted negotiations and the receipt of two fairness opinions from our financial advisors, the Zarlink Board of Directors unanimously recommends that shareholders and debenture holders tender their shares and debentures to the amended offers from Microsemi.”
Microsemi believes the transaction will be immediately accretive to non-GAAP EPS before synergies. For the September quarter, net sales for Microsemi are expected to increase from 3% to 5% sequentially.
To partially fund the acquisition, Microsemi is in the market with an US$800m seven-year term loan via Morgan Stanley. The first lien senior secured loan is expected to pay around 450bp over Libor.
Prior to the acquisition and debt financing, Microsemi had a leverage ratio of approximately 1.5 times. But the company’s CFO John Hohener said that Microsemi was comfortable increasing this given the synergies that would result from the purchase. Speaking at an investor call, Hoehener said: “Given the low interest rates currently, the exceptional fit of the acquisition, the relatively stable nature of Zarlink’s revenue base and the solidly accretive nature of the acquisition, we are comfortable introducing additional leverage into our model.”
Stifel Nicolaus Weisel and Morgan Stanley are financial advisers to Microsemi on the acquisition with O’Melveny & Myers and Stikeman Elliott its legal advisers. RBC Capital Markets and Canaccord Genuity advised Zarlink alongside legal advisers McCarthy Tetrault, Davies, Ward, Phillips & Vineberg and SNR Denton US.
Headquartered in Ottawa, Zarlink develops mixed-signal chip technologies for a broad range of communication and medical applications.
