Monday, February 8th, 2010
Microchip Picks Up SSTI On the Cheap
Microchip Technology Inc. (NASDAQ:MCHP) is set to pick up Silicon Storage Technology, Inc. (NASDAQ:SSTI) for a cool $95 million, after cash and liquid investments, in what some SSTI shareholders are calling a sharply undervalued transaction.
Microchip Technology Inc. (MCHP, Free Analysis), a developer and manufacturer of specialized semiconductor products, announced in a press release on February 3, 2010 that it would acquire Storage Silicon Technology, Inc. (SSTI, Free Analysis) for $2.85 per share in cash. However, at least one shareholder group believes that the price undervalues the firm.
How Much is SSTI Really Worth?
The SST Full Value Committee believes that the $2.10 per share purchase price assigns a negative value to the company. As of September 30, 2009, the company had net cash and long-term investments of about $211.6 million, or $10.3 million more than the amount shareholders are set to receive from the merger.
The group also argues that the company has seen a significant improvement in business fundamentals, yet management is opportunistically undertaking the merger at a multi-year low in the company’s stock price. As a result, shareholders are being denied the opportunity to participate in this future growth.
Instead of selling the company, the group insists that management should reduce operating expenses, divest its non-core product lines, and maximize the value of its licensing stream. In order to affect this, the group filed a proxy in January 2010 to adjourn or postpone the special meeting of shareholders that would consummate the transaction.
Microchip Gets a Cheap Acquisition
Microchip is set to make the acquisition on the cheap for just $95 million net of SSTI’s cash and liquid trading securities. The transaction is expected to be accretive on a non-GAAP basis in the first full quarter, while the remaining long-term investments add substantial value. Finally, the company expects excellent blended non-GGAP operating margins after divestures.
Among other things, Microchip will acquire the SSTI’s proprietary SuperFlash technology, which is a critical building block for advanced microcontrollers. This technology is licensed by most major foundries and OEMs and is considered to be a valuable piece of intellectual property within the industry, and acquiring it give the company a competitive advantage.
Microchip plans to divest the NAND drive and WiFi amplifier business, while it holds the memory business as an asset for sale until it rationalizes the business. Combined, the transaction represents a great deal for Microchip, possible at the expense of existing SSTI holders in the eyes of at least some shareholders in the SST Full Value Committee.
Written by Simon Monger
