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Thursday, October 22, 2015

Industry consolidation accelerates as Microsemi gazumps PMC-Sierra

By Nick Flaherty

Coming hard on the heels of Dialog's acquisition of Atmel and Western Digital acquiring SanDisk, Microsemi wants to acquire PMC-Sierra in a $2.4bn deal that highlights the accelerating consolidation in the embedded industry.

This consolidation is somewhat hidden by the tech bubble involving software and apps, but highlights the change in the semiconductor cycle into a downturn. The industry avoided taking too much of a hit in 2008 as the semiconductor cycle was at its peak, but the current cycle is set to coincide with the bursting of the tech bubble.  

This is important as the Microsemi and Sandisk deals are very much geared to the growth in data centres that is driven by the players in the tech bubble. "This Complements optical and switching portfolios, accelerates existing data center growth effort
," said Microsemi. This deal in particular is a sign of the peak of the cycle, as PMC-Sierra was set to acquire Skyworks, and the current deal aims to change that. 

This is the same kind of deal that happened at the peak of the property market in the UK, where a buyer comes in with a higher offer, called gazumping.  

The PMC deal is valued at $11.50 per PMC share, representing a premium of approximately 50 percent to the closing price on October 5th, 2015, the last trading day prior to the announcement of PMC's proposed acquisition with Skyworks. Microsemi believes its $2.4bn cash and stock proposal would provide PMC shareholders with a substantial premium and immediate cash value, as well as the opportunity to participate in the significant upside potential of a global analogue and mixed-signal leader with a highly diversified platform for growth and profitability. 

"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."

The transaction with Microsemi will only be subject to domestic regulatory approvals (as opposed to approvals by foreign government entities including China, which is required under the Skyworks merger agreement and likely to result in additional uncertainty and delays) and customary closing conditions, as well as the approval of PMC's shareholders.

This comes as Qualcomm absorbs Cambridge Silicon Radio (CSR) after last years acquisition, Dialog bids to acquire Atmel for $4.6bn and Western Digital looks to take over SanDisk. The $19bn SanDisk deal allows WD to use the silicon and embedded software for solid state disk drives, particularly for the data centre. This comes hot on the heels of the $67bn acquisition of enterprise drive supplier EMC by Dell.   

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