Microchip underbids for Atmel and wins

By Nick Flaherty www.flaherty.co.uk

Microchip Technology has booted Dialog Semiconductor out of its deal to buy Atmel with a lower offer but more cash.

Microchip today signed a definitive agreement to acquire Atmel for $8.15 per share in a $3.56bn combination of cash and shares. This compares to the $4.6bn offer from Dialog, although Microchip's cash offer of $7 a share is significantly higher.  

This potentially puts Dialog at risk of being acquired itself. A $137m termination fee will help, but still leaves Dialog vulnerable in this time of manic mergers.  

"Our Board of Directors determined, after consultation with our financial advisor and outside legal counsel, that the transaction with Microchip is a superior proposal for Atmel's stockholders under the terms of our merger agreement with Dialog Semiconductor plc that we terminated today.  Under the Microchip transaction, Atmel stockholders will receive a much higher cash consideration per share compared to the Dialog deal, as well as the opportunity for further upside through the ownership of stock of Microchip," said Steven Laub, President and CEO of Atmel.

Microchip bought Micrel in May last year, and this deal takes out Atmel as a major competitor, consolidating customer business in Microchip as there was more common product lines between the two compared to the Dialog deal (as in the chart on the left). The combination of Atmel and Microchip will have revenue of around $4bn (compared to $3.5bn for the Dialog/Atmel combination), and this will lead to similar estimated cost savings of $170m from April 2018. However, the deal still needs to be approved by Atmel's shareholders, so its not a done deal yet.

"We are delighted to welcome Atmel employees to Microchip and look forward to closing the transaction and working together to realize the benefits of a combined team pursuing a unified strategy.  As the semiconductor industry consolidates, Microchip continues to execute a highly successful consolidation strategy with a string of acquisitions that have helped to double our revenue growth rate compared to our organic revenue growth rate over the last few years.  The Atmel acquisition is the latest chapter of our growth strategy and will add further operational and customer scale to Microchip," said Steve Sanghi, President and CEO of Microchip. 

The transaction has been approved by the Board of Directors of each company and is expected to close in the second quarter of calendar year 2016, subject to approval by Atmel's stockholders, regulatory approvals and other customary closing conditions. 

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