Is PMC Storage Shopping?
Officials aren't exactly being coy about it. "[PMC] has identified a semiconductor business that is consistent with its business strategy, and, if acquired, could significantly increase the registrant’s consolidated assets and revenue," the company stated in an SEC document filed Oct. 20.
The statement goes on to say that PMC is "in advanced discussions" with the target company but hasn't settled on any terms yet.
On the same day as the filing, PMC launched a debt offering worth $225 million, adding to its cash stash of $376 million, apparently in preparation for the acquisition. (See PMC Prices $225M Offering.)
All signs point to a deal being imminent. "We believe the company could make an announcement in the next few weeks," writes analyst Ram Ganesh of Deutsche Bank AG in a recent report.
PMC had not-so-subtly hinted at its plans on Oct. 19 during an earnings call with analysts. "We'll be looking at opportunities to augment our organic growth," CEO Bob Bailey said on the call. He later added that "we want it to be in an area that's strategic" -- namely, in communications or storage.
(In a pointless coincidence, notable tradeshows are running in both those areas this week: the United States Telecom Association (USTA)'s Telecom '05 in Las Vegas, and Storage Networking World in Orlando, Fla. -- see Storm Clouds Gather Over SNW.)
So, communications or storage? Analysts seem to be leaning toward the storage side, where a couple of tasty possibilities have popped up.
Adaptec Inc. (Nasdaq: ADPT) is one possibility, according to Ganesh and others in the financial community. Times have been tough for the venerable Silicon Valley firm, which recently announced plans to sell the storage subsystems division crafted from the acquisitions of Eurologic and Snap. (See Adaptec Says Sayonara to Systems.) Its slump has brought Adaptec's valuation down to $450 million.
Another candidate could be the storage portion of 's (NYSE: A) semiconductor division, Ganesh wrote. In August, Agilent announced the sale of the division to private investors Kohlberg Kravis Roberts & Co. and Silver Lake Partners for roughly $2.66 billion, a deal expected to close in December. (See Agilent Launches Extreme Makeover and Agilent Readies SPG Sale.) The storage portion, with yearly revenues of around $115 million, could go for a price of $230 million to $345 million, Ganesh writes.
A glance at the Byte & Switch Top 10 Private Companies points to another, albeit less likely, possibility: Mellanox Technologies Ltd., the InfiniBand specialist. PMC doesn't have InfiniBand products, so the deal would add something new to its lineup. Mellanox is doing well, but it's unclear that PMC would want to jump into InfiniBand. (See Mellanox.)
Then there are longtime PMC rivals Applied Micro Circuits Corp. (AMCC) (Nasdaq: AMCC) and Vitesse Semiconductor Corp. (Nasdaq: VTSS), both of which have storage divisions of their own. But neither seems interested in dropping out of storage, and AMCC, valued at more than $800 million, would be out of PMC's price range.
Of course, it's always possible PMC is shopping in the communications aisle rather than storage. Here, Vitesse makes a little more sense -- its $375 million valuation is affordable for PMC, and it could provide some optical-networking chips PMC doesn't have, such as laser drivers.
One source said Wintegra Inc. had come up in rumors, but the network processor firm has its sights on going public, which would make a buyout expensive. (See Chip IPOs Almost Ready.)
PMC's plan could come to fruition soon. The debt offering is expected to close today, at which point PMC presumably will have the money to close out the deal. — Craig Matsumoto, Senior Editor, Light Reading