Comms chips

Semtech Got in a Bidding War for Gennum

Shares of chipmaker Gennum Corp. (Toronto: GND) have doubled this morning, because that's what Semtech Corp. (Nasdaq: SMTC) is paying to acquire the company.

Semtech is offering CDN$13.55 (US$13.37) per share, or about CDN$500 million (US$494 million) total, to acquire Gennum, the companies announced Monday night.

Gennum was trading at CDN$6.15 per share Monday. That, uh, changed Tuesday, as Gennum opened at $13.42, up 118 percent.

Semtech CEO Mohan Maheswaran didn't explain the purchase price in detail on a conference call with analysts Tuesday morning. But he did say that Semtech got into a bidding war, or at least a skirmish.

Officials didn't go into any detail about what happened. "The bankers followed the process, and we ended up winning," Maheswaran said.

Gennum has been profitable since 2009 and isn't exactly struggling, although one analyst on the call did allude to Gennum's growth slowing down recently. Still, the roughly 120 percent premium alone probably explains why Gennum was willing to sell, Maheswaran said.

Some of the premium might also reflect a lower valuation that Gennum gets for being Canadian. We're not saying that to make fun of Canada. A U.S.-based chip executive tells Light Reading on background that Gennum has always gotten a bit of a snub from investors because it's on the Toronto Stock Exchange.

"Someone at Gennum was telling me about this once," the source says. "Gennum always felt their valuation was lower than what they would have gotten on Nasdaq."

Gennum's analog-design expertise has gone into making high-speed interface chips -- devices used in backplanes, for instance. That would complement Semtech's businesses of analog and mixed-signal chips for things like 40Gbit/s line cards.

Gennum would also bring Semtech into the Fibre Channel and fiber-to-the-home markets, Maheswaran said. Gennum also sells high-speed interface chips into a variety of other markets, including video equipment.

Primary competitors to Gennum include Mindspeed Technologies Inc. (Nasdaq: MSPD) and Texas Instruments Inc. (NYSE: TXN), Maheswaran said.

Semtech is funding the all-cash deal with new bank financing, up to US$400 million to be provided by Jefferies Finance LLC. After the deal closes, Semtech would be left with about US$100 million in cash, Maheswaran said.

— Craig Matsumoto, West Coast Editor, Light Reading

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