UPDATE 2-SMSC to acquire chipmaker Conexant for about $200 mln

Mon Jan 10, 2011 12:33pm EST

* To also assume debt of about $85 million

* Sees Q4 adj EPS $0.20-$0.24 vs est $0.32

* Shares down 8 pct (Recasts; adds deal and conference call details, analyst comment; updates share movement)

By Siddharth Cavale

Jan 10 (Reuters) - Chipmaker Standard Microsystems Corp SMSC.O said it would acquire Conexant Systems Inc CNXT.O for about $200 million in a cash-and-stock deal, to strengthen its foothold in the automotive and industrial markets.

The Hauppauge, New York-based company also forecast a weak fourth-quarter profit on inventory build-up, sending its shares down 8 percent.

SMSC, which makes chips that help PCs communicate with keyboards and external drives, will assume Conexant's net debt of about $85 million. Conexant shareholders will get $1.125 per SMSC share in cash and $1.125 in stock.

The total cash consideration is about $98 million and SMSC will issue 2.9-3.6 million shares, the company said.

"I think this is a fair deal and as the pool of buyers is really limited, I am not expecting any topping offers," Jefferies analyst Blayne Curtis said.

The technology sector is seeing a return of mid-sized deals as companies eye niche firms for growth.

The analyst added that given Conexant had scale and debt problems, "being part of a larger organisation will definitely benefit it," Jefferies' Curtis said.

"I still expect to see technology acquisitions in the $50-$200 million range by some of the consolidators such as Broadcom (BRCM.O) and Marvell Technology (MRVL.O)."

SMSC said it expects the deal to add to adjusted earnings per share, gross margins and operating margins. It also sees annual pre-tax cost synergies of $8-$10 million in the fourth quarter of fiscal 2012.

SEES WEAK Q4

The company reported third-quarter earnings that beat market expectations, but forecast a weak fourth quarter.

Sales at its industrial segment, which caters to high-profile clients like BMW (BMWG.DE) and Audi (NSUG.DE), are expected to drop 20 percent on inventory correction. Consumer sales will decline slightly due to weakness in video-related products, Chief Executive Christine King said on a conference call with analysts.

The company sees fourth-quarter earnings of 20-24 cents a share, excluding items, on revenue of $96-$99 million.

Analysts on an average expect SMSC to earn 32 cents a share, excluding items, on revenue of $99.1 million, according to Thomson Reuters I/B/E/S.

SMSC's shares, which have gained 32 percent since reporting second-quarter results on Sept. 28, were down $2.55 at $27.19 in mid-day trade on Nasdaq.

Shares of Conexant were up 15 percent at $2.17 on Nasdaq. (Reporting by Siddharth Cavale in Bangalore; Editing by Roshni Menon)

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