Ikanos to acquire Conexant's broadband chip line, including PON devices
APRIL 22, 2009 By Stephen Hardy -- Broadband semiconductor and software products vendor Ikanos Communications Inc. (search Lightwave for Ikanos) has signed a definitive agreement to acquire the Broadband Access product line of Conexant Systems Inc. (search Lightwave for Conexant) for $54 million in cash and certain liability assumption. The Conexant devices include its Xenon PON chips.
The boards of directors of both companies unanimously approved the deal, which calls for Ikanos to assume "certain employee and facility related liabilities" in addition to its cash payment. To help fund the transaction, Tallwood Venture Capital has agreed to purchase 24 million shares of Ikanos common stock for $42 million, or $1.75 per share. Tallwood will also receive warrants to purchase an additional 7.8 million shares of common stock at $1.75 per share. The warrants will have a term of five years.
Upon completion of the transactions, Tallwood will own approximately 45 percent of the outstanding shares of Ikanos (excluding the warrants). In addition, Tallwood's general partner, George Pavlov, and managing partner, Dado Banatao, will join Ikanos's board.
The deal is subject to customary closing conditions, including stockholder and regulatory approvals, and is expected to be completed in the third quarter of calendar 2009.
Ikanos has been strong in the VDSL market. However, it licensed GPON PHY technology from Terawave Communications in 2007 with the idea of combining it with the Ikanos Fusiv Vx170 gateway processor to develop a GPON residential gateway reference platform.
For its part, Conexant had addressed both EPON and GPON, as well as chips for home gateways.
Ikanos expects that the transaction will more than double its revenue and provide "significant leverage in its cost and spending structure." Ikanos also expects that the transaction will be accretive to its non-GAAP earnings per share within the first year after the close of the transaction.
The combination will add ADSL market share to Ikanos's VDSL base and create a product portfolio that includes SHDSL, 802.11 b/g wireless networking, Ethernet switching, as well as the PON devices. In addition, the combined company will have both MIPS- and ARM-based processors.
"With the number of home networks doubling to more than 400 million by 2013 according to analysts, there's a substantial opportunity for Ikanos to address the need for delivering bandwidth to and throughout the home," said Michael Gulett, president and CEO of Ikanos. "We'll use our strengthened leadership in broadband access as a platform on which to build new offerings that extend multi-play services seamlessly everywhere they are needed."
Ikanos says that Conexant's Broadband Access product line has traditionally been strong in North America and China while Ikanos has led in Japan, Korea, and Europe. The combined company will be well positioned to address the global market for broadband semiconductors, and better serve customers in all geographies, Ikanos asserts.
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