Yahoo Finance Microsemi Wins PMC-Sierra for a 77% Premium
Semiconductors: The Impact of an Acquisition and 4Q15 Earnings
Microsemi wins PMC-Sierra
Skyworks Solutions’ (SWKS) and Microsemi’s (MSCC) battle for PMC-Sierra (PMCS) has finally come to an end. PMC-Sierra accepted Microsemi’s third revised cash-stock offer of approximately $2.5 billion on November 24, 2015, after Skyworks refused to revise its bid. Skyworks stated that PMC-Sierra was not a financially viable option for it at such a high value. The current deal values PMC-Sierra shares at a 77% premium from the closing price on September 30, 2015, when PMC-Sierra revealed its openness to a merger.
The news saw Skyworks’ shares rise 2.6% to close at $79.72, while PMC-Sierra shares fell 2% to $11.60 and Microsemi shares fell 6.5% to $33.87 on November 24, 2015. PMC-Sierra joins the likes of Altera (ALTR) and other companies that have been gobbled up in the semiconductor consolidation wave.
Details of the transaction
According to the revised offer, Microsemi will pay $12.05 for every PMC-Sierra share, with a cash component of $9.22 and a share component of $2.83. The deal, which has been approved by the boards of both companies, does not require the approval of Microsemi shareholders. Once the transaction is completed in 1Q16, Microsemi shareholders will own ~85% stake in the combined company and PMC-Sierra shareholders will own the remaining ~15%.
Investors’ and analysts’ reactions
The turn of events came as a shock to investors and analysts, as PMC-Sierra’s board had always favored Skyworks’ all-cash offer of $2.2 billion over Microsemi’s offer. Skyworks shareholders were happy with the company’s exit from the merger and this was evident with the 2.6% rise. On the other hand, the deal was not received well by Microsemi shareholders, as the stocks plunged 6.5%.
Analysts did not expect Skyworks to back out from the battle, but they admitted it was a wise move by the company. They view it as a win-win situation for Skyworks, as it escapes an expensive merger and also receives an $88.5 million termination fee. However, they view the deal as risky for Microsemi, given the high cost of the transaction and the termination fee offsetting some of the merger synergies.
We’ll discuss the impact of the deal on both Microsemi and Skyworks in the coming parts of this series. You can gain exposure in Skyworks by investing in the PowerShares QQQ ETF (QQQ), which has 0.28% exposure to the company’s stock.
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