Nothing hostile about Zarlink bid, Microsemi claims

Published in the Ottawa Business Journal newspaper and website.
July 21, 2011 on (July 25 in the paper edition)

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Offer too low, says Ottawa-based company’s board

A Microsemi (NASDAQ:MSCC) executive says his company’s US$548.7-million offer for Ottawa-based Zarlink Semiconductor (TSX:ZL) is not a hostile takeover bid, but simply an attempt to get the local firm’s attention.

“We’ve put a very substantial offer on the table and it’s an opportunity to join forces and take things to another level, but it’s not a takeover … we’re not at that stage yet,” said Steve Litchfield, Microsemi’s chief strategy officer, in an interview with OBJ. “We’re just asking for a meeting and we’re anxious to sit down with management.”

The Irvine, Calif.-based chip maker on Wednesday publicly launched a non-binding proposal to acquire Zarlink for C$3.35 in cash per share.

The offer is not a formal bid for the company, Mr. Litchfield noted.

The deal represents a 40-per-cent premium to Zarlink’s closing stock price as of July 19 and a 43-per-cent premium to Zarlink’s average closing stock price for the 30 days prior to July 20.

Microsemi’s CEO Jim Peterson pointed out in an open letter to Adam Chowaniec, Zarlink’s chairman, that the offer also “exceeds every price at which Zarlink’s stock has traded during the past five years.”

“We believe this proposal provides your shareholders a far superior economic alternative to the risk-adjusted outcomes associated with the company’s stand-alone prospects,” the letter read.

The company said it had been trying to engage in discussions with Zarlink for the past six months, offering C$3 per share in a May proposal and then a sweetened offer of C$3.25 to $3.55 per share in June.

However, Microsemi said Zarlink’s board rejected the proposals “without discussion with (Microsemi) and without offering any reasons as to why.”

“Your continued refusal to discuss our proposal compels us to directly inform your shareholders of our attractive proposal,” Microsemi’s letter read.

Zarlink’s stock soared more than 50 per cent on the Toronto Stock Exchange following the announcement, closing at $3.60 on Wednesday.

The Ottawa chip maker’s board and management issued a response after markets closed stating that it believed Microsemi’s earlier proposals “significantly undervalued Zarlink and its future prospects,” and that the latest offer did not change that conclusion.

“The Zarlink board has always been prepared to consider and pursue strategic transactions or plans and will consider all appropriate alternatives which capture the true value of the company for its stakeholders,” Mr. Chowaniec stated, pointing to Zarlink’s successes with its line circuit and network timing products and its new focus on the medical wireless market.

However, Microsemi’s Mr. Litchfield said there had previously been “good dialogue” between the two companies when Kirk Mandy was still chief executive of Zarlink, but that talks had dropped off since Gary Tanner was appointed as the new CEO in February.

“We’re looking to do a friendly deal and we’re excited because we think it’s a great fit, so we want to engage in a sit-down conversation,” said Mr. Litchfield. “Lately we’ve been pushed back, so the next course of action was to basically say, ‘Wait a second, there’s a 40-plus (per-cent) premium and that will be interesting to shareholders, so let’s let them know.’”

While he said Microsemi was not yet pursuing a hostile takeover, he did not rule out the possibility of launching a tender for Zarlink. “We’ll consider it as needed.”

Mr. Litchfield’s comments were underscored by those in his company’s open letter: “Microsemi is steadfast in its pursuit of a transaction with Zarlink … We would prefer to proceed through friendly negotiation; however, please know we stand ready to take all necessary actions to complete this transaction.”

Mr. Litchfield noted that Microsemi has a target to grow by 20 per cent every year, with about two-thirds of that being through organic growth and the balance through acquisitions.

Besides Zarlink, the company has announced plans for three other acquisitions since April, and it said in its release that it’s completed 14 takeovers worth a total of $1.1 billion over the past five years.

Mr. Litchfield said Microsemi’s interest stems from the fact that the two companies have overlapping medical customers such as Medtronic and St. Jude Medical. As well, Microsemi’s recent foray into the communications market makes Zarlink a good fit, he said.

He added that Microsemi also wants to tap into Zarlink’s pool of engineers in Ottawa and Austin, since the California firm does not yet have a significant presence in either city.

Microsemi has fewer than 10 engineers working remotely from Ottawa, Mr. Litchfield noted. As such, the company is pledging to focus on growing engineering talent.

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