Tag: hostile deals

Microsemi opens the hostilities

Brenon Daly

Contact: Brenon Daly

In a bear-hug letter last month, Microsemi warned fellow chipmaker Zarlink Semiconductor that it was ready to ‘take all necessary actions’ to consolidate the Canadian company. On Wednesday, that came to pass: Microsemi said it would bypass Zarlink’s board, which shot down the unsolicited offer, and take its $549m all-cash bid directly to shareholders. Incidentally, the opening of this hostile offer in the semiconductor industry came on the same day that SABMiller launched its $10bn hostile bid for Australian brewer Foster’s Group.

Going hostile in deals is relatively rare, as the drawn-out procedure can be expensive and disruptive to business on both sides. Further, in the tech industry, the conventional wisdom has always been that hostile approaches would cause an exodus of employees at the target company, undermining the very reason for the acquisition. (Given our realpolitik view of the world, we’ve always been a little bit skeptical about that bromide. We just can’t help but think back a few years ago to how PeopleSoft, with its culture of hugs and Hawaiian shirts, stood up to the relentless push by Oracle.)

Whatever the theoretical concerns, Microsemi must have certainly factored them in before launching the offer. The company says it has the financing in place, and will have its bid open through September 22. (Morgan Stanley and Stifel Nicolaus Weisel are advising Microsemi, while Ottawa-based Zarlink is relying on RBC Capital Markets.) It’s hard to know exactly which way Zarlink shareholders will go on this one, but we can’t help but note that shares on the Toronto Stock Exchange have already traded through the bid since Microsemi floated its offer.

A chippy deal

Brenon Daly

After more than two months of discussions, Cadence Design Systems put a bear hug on Mentor Graphics on Tuesday, June 17, offering roughly $1.6bn in cash for the smaller chip-design vendor. Under terms of the unsolicited offer, Cadence would pay $16 for each of the roughly 91 million Cadence shares. Cadence said it would cover roughly one-third of the purchase with its available cash, while borrowing an additional $1.1bn. Deutsche Bank Securities is advising Cadence.

The deal – if it gets approved by Mentor shareholders and survives regulatory review – would combine two of the three largest electronic design automation (EDA) companies. Cadence and rival Synopsys are roughly the same size at about $1.6bn in sales last year, which is twice as big as Mentor. (Various pairings of these three players have been discussed over the years.) However, Mentor said later Tuesday that it was not interested in a pairing with Cadence.

Cadence’s approach, which we would characterize as ‘opportunistic consolidation,’ continues a recent trend toward unsolicited offers for underperforming rivals made in a very public way. (Although Mentor has recently trimmed its rather bloated cost structure, the company’s operating margins are less than half the level at Cadence.) The outcome of these ‘bear hugs’ has spanned the possibilities: Iomega recently accepted a raised offer from EMC; Microsoft walked away from its unsolicited bid for Yahoo; and Electronic Arts took its bid for Take-Two Interactive hostile.

EDA deal flow, by year

Year Deal volume Deal value
2005 5 $298m
2006 6 $888m
2007 13 $225m
YTD 2008* 11 $2.7bn

*includes announced Cadence-Mentor transaction. Source: The 451 M&A KnowledgeBase