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Novafora/Transmeta Faces Scrutiny

Jeff Baumgartner
11/21/2008

The Novafora Inc. bid for Transmeta Corp. may be in for a bumpy ride, as a potential class action lawsuit claims the terms of the $255.6 million deal are unfair.

Levi & Korsinsky LLP, a firm specializing in cases related to securities, mutual funds, and consumer fraud, is encouraging Transmeta investors to retain its services for the suit.

The Novafora deal, announced Tuesday, would pair the company's next-generation video processing chips with Transmeta's power consumption technologies. Novafora, a San-Jose, Calif.-based startup, would exchange $18.70 to $19 in cash for each Transmeta share. (See Novafora Snaps Up Transmeta.)

But that's not enough, according to the law firm, which states, "As of September 20, 2008, [Transmeta] had $255 million in cash and cash equivalents. The offer price, in effect, values the Company's operations and intellectual property at zero."

Well, not zero. But, still, not very much.

According to a transcript of Transmeta's third-quarter earnings call on Tuesday, chief financial officer Sujan Jain said the deal puts an enterprise value of $11.6 million on Transmeta. (That's market capitalization, minus cash, plus debt -- roughly speaking, the true price of acquiring the company.)

That amount is already in an escrow account, due to be released when the deal closes sometime in the first quarter of 2009.

Lawsuit or no lawsuit, the financial terms of the deal have perplexed some analysts.

TheDeal.com quotes a report from Algorithm Capital analyst Philip Zera that says, "Excluding cash, [Transmeta] is receiving just over $11 million for its entire portfolio of valuable technology that has been developed over ten years at a cost in excess of $400 million."

And Cable Digital News chief analyst Michael Harris likened the deal to a "blue light special."

Transmeta and Novafora declined to comment for this story.

— Jeff Baumgartner, Site Editor, Cable Digital News

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