Microsemi offers competing bid for PMC-Sierra

Communications semiconductor vendor Microsemi Corp. (NASDAQ: MSCC) has unveiled a bid for fellow chip vendor PMC-Sierra, Inc. (NASDAQ: PMCS) as an alternative to the one PMC-Sierra's board accepted from Skyworks Solutions, Inc. (NASDAQ: SWKS). Microsemi says it will offer $11.50 per PMC share in cash and stock, for a total transaction value of $2.4 billion. Skyworks had offered approximately $2 billion in cash for PMC-Sierra (see "Skyworks agrees to acquire PMC-Sierra"). The extra $400 million, plus the synergies between the two companies as well as a more streamlined approval process, makes Microsemi's offer a "Superior Proposal" as defined by PMC's merger agreement with Skyworks, the company believes.

Microsemi's offer comprises $8.75 in cash and 0.0736 of a share of Microsemi common stock for each share of PMC common stock held at the close of the transaction. Microsemi expects to fund the deal and repay its existing credit facility with existing cash, $2.7 billion in new transaction debt, and $0.6 billion in Microsemi common stock. Microsemi shareholders would own approximately 85% of the combined company, Microsemi estimates.

The company apparently has been in discussions with PMC's board for some time about a potential tie up.

"Based on extensive discussions with PMC over the past 18 months and comprehensive analysis, we believe this transaction offers compelling strategic and financial benefits for the shareholders of both Microsemi and PMC," said James J. Peterson, Microsemi's chairman and CEO. "This acquisition will provide Microsemi with a leading position in high-performance and scalable storage solutions targeted for data center and cloud applications, while also adding a complementary portfolio of high-value communications products. Microsemi has a strong track record of integrating acquisitions and driving profitability, and we will benefit from increased scale, industry-leading margins, diversified market exposure, consolidated infrastructure and substantial cost savings in a combination with PMC."

Should PMC's board accept the deal, Microsemi's management says the transaction would be immediately accretive to non-GAAP EPS and free cash flow. Management also expects to find more than $100 million in annual cost synergies, with greater than $75 million of those to be realized in the first full quarter of combined operations. Microsemi estimates more than $0.60 of non-GAAP EPS accretion in the first full year after closing the transaction, which could come as quickly as this December "assuming swift action by PMC's board," in the words of a press statement.

As of 11:15 AM EDT, neither Skyworks nor PMC had publicly responded to Microsemi's offer.

Microsemi has made two other purchases recently with relevance to optical communications technology. The company bought Vitesse Semiconductor earlier this year and Centellax this past fall (see "Microsemi to acquire Vitesse Semiconductor" and "Microsemi to snap up Centellax").

For more information on communications ICs and suppliers, visit the Lightwave Buyer's Guide.