Microsemi blinks and finally gets Zarlink

Patience finally paid off for Ottawa’s Zarklink Semiconductor Inc.

After months of spurning buyout offers from Microsemi Corp., the California company finally raised its bid for Zarlink to $3.98 a share from $3.35, plus hiked the amount it is willing to pay for Zarlink debentures.

That was enough for the Zarlink board to agree Thursday to recommend shareholders accept what is now a $525 million share offer, up from $445 million.

“After careful consideration of strategic alternatives, protracted negotiations and the receipt of two fairness opinions from our financial advisors, the Zarlink board of directors unanimously recommends that shareholders and debenture holders tender their shares and debentures to the amended offers from Microsemi,” Zarlink chair Adam Chowaniec said in a statement.
Zarlink had repeatedly dismissed Microsemi’s bid as undervalued, and in a conference call this morning Microsemi CEO acknowledged he was wrong. Once they upped the price and got a closer look at the Canadian company’s books and product roadmap he realized “Zarlink’s board was right and their management was right. We would see value.”
He was ebulent during the call. “Despite a rough start,” he said, a reference to the time it’s taken to seal the deal, this is now a friendly takeover. “Once we engaged with Zarlink on better terms our diligence revealed them to be worth the wait, worth the worry and definitely worth the price.
“The fit is better than we thought.”
He estimated the deal will boost Microsemi stock by 24 to 26 cents a share in part in part thanks to the additional revenue from Zarlink and expected efficiencies from merged operations.
He gave no details of what Microsemi will do with the Ottawa operation, other than make a pitch for Zarlink’s engineers not to leave. “We think Zarlink has the best engineers in their market space … We say, ‘Give us a chance, we’re nice guys.'”
Microsemi’s move came on the day its original offer was set to expire. Shareholders and debenture holders will now have until Oct. 12 to tender their holdings.

Zarlink designs mixed signal chips for some of the leading network equipment makers, as well as wireless chips for implantable medical devices.

Microsemi makes a wide range of semiconductors including mixed signal and wireless integrated circuits.

The companies said the amended share offer is a 67 per cent premium over the closing price of the shares on the TSX and a 48 per cent premium over the closing price of the debentures on the TSX on July 19. That was the day prior to Microsemi’s official offer to buy Zarlink. It has been pursuing the Ottawa company since early in the year.

Another way of looking at it is Microsemi hiked its offer 15 per cent between yesterday and today.

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