The board of US chip maker PMC-Sierra is standing by semiconductor firm Skyworks Solutions and its US$2.27bn all-cash offer, believing a higher bid from rival Microsemi is riskier because of its stock element. Their takeover battle comes amid a wider consolidation trend in the semiconductor industry.
The board of US chip maker PMC-Sierra (NASDAQ:PMCS) is standing by semiconductor firm Skyworks Solutions (NASDAQ:SWK) and its US$2.27bn all-cash offer, believing a higher bid from rival Microsemi (NASDAQ:MSCC) is riskier because of its stock element.
Microsemi tried last week to trump the latest Skyworks proposal, an improvement on the US$2bn the latter initially offered in October, with a US$2.33bn cash-and-stock plan. The deal would give Microsemi about 85% of the combined group and PMC shareholders would take the rest.
However, PMC said the Skyworks deal has more value certainty for shareholders as consolidation continues to rock the semiconductor industry.
“Capital markets broadly, and semiconductor stocks specifically, have been highly volatile recently due to concerns about recent earnings results and outlook, slowing global economic growth, rising interest rates, and geopolitical uncertainties,” the company warned.
“This volatility adds a high level of uncertainty to the stock component of Microsemi’s offer.”
The group said that, with Microsemi’s shares trading near a five-year high, the value of its offer is essentially the same as the Skyworks deal (US$11.61 vs US$11.6) when using 60 or 90 trading day averages.
Microsemi plans to fund the acquisition and repayment of existing facilities through US$2.7bn in new debt and US$0.6bn in Microsemi shares, and has secured committed facilities with Morgan Stanley. PMC warned that Microsemi would be one of the most highly leveraged public semiconductor companies if the deal went ahead, with pro forma CY2015 total debt to EBITDA of 5.7x, adding more risk to the shares.
PMC said Microsemi has not been willing to up its offer further, and it will continue to support a deal with Skyworks with a view to closing it in H1 2016.
Microsemi said earlier that it could amend its deal structure into an “exchange offer”, which could enable it to close the deal as early as late December. Unlike the Skyworks proposal, its offer would just require domestic regulatory approvals and does not hinge on foreign government entities such as China.
Chip makers have been consolidating in recent years to gain scale and pool their resources in an increasingly competitive market. Intel, NXP Semiconductors and Avago Technologies are among those that have announced multibillion dollar acquisitions this year.
Microsemi’s has been an active player in this trend, launching a US$389m cash tender offer in March for Californian peer Vitesse Semiconductor.
The group, which makes radio frequency semiconductors including chips that are also used for communications satellites, hired Stifel for financial advice and O’Melveny & Myers for legal advice.
Skyworks supplies semiconductors that are used in radio frequency and mobile communications systems and hired Qatalyst Partners and Needham & Company for financial advice.
PMC, which specialises in storage, optical and mobile network solutions and its products include chips for satellite IP routers, is also being financially advised by Qatalyst and Needham. Skadden, Arps, Slate, Meagher & Flom is acting as legal adviser.
Its portfolio would help either company expand in the rapidly growing data centre market.