II-VI Gets Anadigics – Good Luck With That
One of the more protracted bidding wars for an IC company in recent years appears to have been won by II-VI Inc., which has edged out an unidentified Chinese investor (Party B) to buy Anadigics. (See Anadigics Weighs New Bid From Chinese Suitor.)
II-VI Inc. , acting through a subsidiary, is paying 85 cents a share for Anadigics Inc. (Nasdaq: ANAD), or roughly $80 million. It remains to be seen what II-VI will be able to do with Anadigics; the company is a dubious prize.
II-VI specializes in lasers, communications optics and military optics. The acquisition of Anadigics buys the company a position in the market for RF devices. Anadigics counts among its customers companies that make mobile devices (phones, tablets, IoT devices) and customer premise equipment (gateways, set-tops, etc.) that connect to cellular and WiFi networks.
It's a tenuous position, however. Anadigics is dependent on a small and diminishing handful of key customers, and has been losing money for years on steadily decreasing revenue. The company had revenue of just $12 million in its most recently reported quarter, the third quarter of 2015.
On the upside, Anadigics has a solid patent portfolio, and it is developing expertise with gallium nitride circuitry. GaN has properties that are increasingly more attractive than other semiconducting materials for many developing RF markets.
But there's additional downside; there are several more successful suppliers of GaN products. Furthermore, with a "deteriorating liquidity position," Anadigics needed to not only sell, but sell ASAP in order to assure funding for ongoing operations, let alone development of new products. Anadigics explained its finances are so shaky that if the bidding process itself lasted much longer, it was possible that it would have been reduced to such a state that both remaining suitors would have been compelled to just walk away.
According to Anadigics: "…[I]f the Auction Process were permitted to continue beyond February 2016 and the Company were therefore unable by March 1, 2016 or thereabout to execute a definitive merger agreement and a corresponding loan agreement with II-VI or Party B, the Company's business and financial condition, including its cash position, could be irreparably harmed, potentially rendering the Company unable to enter into any merger transaction and thereby denying the Company's stockholders the value of said transaction."
As wounded as it is, Anadigics became an attractive target in November when its stock plunged to a five-year low of 24 cents a share; the high during that time was a full five years ago, in 2011, when it had been trading around $4.50. In November, GaAs Labs pounced, offering to buy the company for a bargain basement 35 cents a share.
Anadigics and GaAs Labs had a buyout agreement, but then II-VI and the as-yet unidentified Party B began making a series of counter offers. GaAs Labs withdrew from the competition in December as the other two bid up the price.
II-VI thought it had Anadigics nailed down in January, but Party B came back with yet another counter offer. II-VI ultimately prevailed over Party B by matching its remaining rival's offer of 85 cents a share, vowing to extend its new subsidiary a $10 million line of credit via a loan agreement, and reimbursing Anadigics for the $1.2 million break-up fee that Anadigics paid to GaAs Labs. Everything else being equal, Anadigics' board noted, being acquired immediately was a necessity, and securing all the necessary approvals for a takeover by a Chinese company would have taken months Anadigics did not have.
— Brian Santo, Senior Editor, Components, T&M, Light Reading