TXN Texas Instruments Incorporated

Microsemi Corp. (MSCC) has amended its tender offer to acquire all of the outstanding shares and debentures of Canada’s Zarlink Semiconductor Inc. for a total transaction value of about $525 million, net of Zarlink's US$107 million cash balance.

Over the past several months, Zarlink had rejected three of Microsemi’s takeover attempts. In May, Microsemi had made its first $3.00 per share bid for Zarlink. Barely a month later, the company raised its proposal to between $3.25 and $3.55. A third takeover attempt was made in mid July at $3.35 per share.

The price was finally fixed at $3.98 a share in cash for each of Zarlink’s outstanding shares, 19% above the previous offer after clearance from its financial advisors, RBC Capital Markets and Canaccord Genuity Corp.

Zarlink is a provider of mixed-signal chip technologies for a broad range of communications and medical applications. It counts on the communications sector for about 80% of its business and the medical sector for most of the rest. The company has seen an impressive turnaround with strong profits in its most recent fiscal year.

Microsemi’s acquisition of Zarlink is a big positive. Not only will it enhance Microsemi’s product line, it will also be immediately accretive to the company’s earnings. Management has stated that the addition of Zarlink would be 24–26 cents accretive to its non-GAAP earnings per share in the first full fiscal year ending 2012. Microsemi also estimates that net sales for its September quarter would increase 3% to 5%.

Microsemi is an OEM with a broad range of high-reliability and analog/mixed signal integrated circuits. The company has spent more than $1.1 billion in 14 buyouts over the past five years. These acquisitions have greatly helped Microsemi to expand its portfolio, enhance the product line and generate incremental growth. However, Microsemi’s broad product line-up brings with it competition from a large number of companies. The most significant competition comes from Texas Instruments (TXN) and Vishay Intertechnology.

As Zarlink’s line of work complements Microsemi’s business greatly, we foresee less integration issues and greater value for the combined entity’s customers and shareholders.

Currently, Microsemi carries a Zacks #3 Rank, indicating a short-term Hold recommendation.

 
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