Skyworks Leaves PMC-Sierra to Microsemi
Microsemi is ending up with PMC-Sierra after Skyworks dropped out of a bidding battle for the maker of components widely used in data center equipment.
Microsemi Corp. will acquire PMC-Sierra Inc. (Nasdaq: PMCS) for $9.22 in cash and 0.0771 of a share of Microsemi common stock for each share of PMC common stock through an exchange offer. The transaction is valued at approximately $2.5 billion.
Skyworks Solutions Inc. (Nasdaq: SWKS) kicked off the festivities on October 5, when it went public with an offer of $10.50 a share, or about $2 billion, all in cash. Microsemi then jumped in with a competing offer (which PMC publicly derogated). Microsemi persisted, but Skyworks came back with a cash bid of $11.60, or about $2.33 billion. Microsemi countered with its $2.5 billion bid. (See Microsemi + PMC-Sierra: Drama, Yes, But a Deal?)
Skyworks decided PMC-Sierra wasn't worth more than $2.5 billion. The company said, "At an increased valuation, PMC no longer meets Skyworks' financial criteria." Skyworks also gets the salve of an $88.5 million termination fee from PMC-Sierra.
Losing a bidding war doesn't look good, but on the other hand, PMC-Sierra really might not have been worth much more to Skyworks.
From a financial perspective, PMC-Sierra still had reasonable fundamentals but declining revenue and uncertain guidance, all of which served to tamp down on its stock value. Furthermore, when a company is looking to sell itself, as PMC-Sierra was, there's usually a reason.
Meanwhile, Wall Street investors were growing skeptical that Skyworks needed PMC-Sierra that badly. If the two had complementary product portfolios, or even a common customer pool, there might have been some real synergy (in contrast to cost-cutting "synergy") in a merger. But buying PMC-Sierra was a diversification play for Skyworks, and there are other -- possibly better valued -- diversification options available.
Different analysts have suggested possible Skyworks targets could include IDT, Inphi, Maxlinear, Mellanox, Monolithic Power, Semtech or Silicon Labs.
Meanwhile, Microsemi crowed about prevailing in the bidding battle for PMC.
Microsemi CEO James Peterson said, "This acquisition will provide Microsemi with a leading position in high performance and scalable storage solutions, while also adding a complementary portfolio of high-value communications products. As we integrate the team and drive profitability, our combined company will benefit from increased scale, industry-leading margins, diversified market exposure, consolidated infrastructure and substantial cost savings."
Microsemi intends to fund the transaction and repay its existing credit facility with existing cash, -- $2.7 billion in new transaction debt and $0.6 billion in Microsemi common stock. Shareholders of Microsemi and PMC will own approximately 85% and 15%, respectively, of the combined entity post completion of the transaction.
— Brian Santo, Senior Editor, Components, T&M, Light Reading