Dealtalk: Microsemi must raise Zarlink bid or lose to rival

Wed Sep 21, 2011 3:47pm EDT

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(Reuters) - A C$550 million hostile bid for specialty chipmaker Zarlink will likely fail as investors wait for predator Microsemi to raise its bid, or for a friendly suitor to emerge.

Microsemi's C$3.35/share bid expires at 5 pm EDT on Thursday. But with the stock at C$3.46 a share, there is little chance of people tendering.

"We would not choose to tender," said Jeff Mo, a portfolio manager whose firm Mawer Investment Management is the sixth-largest Zarlink shareholder, with a 2.4 percent stake.

"Given the high liquidity in the stock, investors would likely sell their shares into the market today rather than tender to a lower offer tomorrow."

Microsemi would have the option of walking away, extending its bid, or raising it, but it is not seen taking the final option as long as there are no rival bids.

Zarlink designs mixed-signal chip technology for communications and medical applications. Analysts say the medical business is poised for growth, making the company an attractive acquisition target in the largely consolidated semiconductor industry.

The company says Microsemi Corp's offer is too low, and expects talks with at least 15 other potential suitors to produce a better deal.

Neither Zarlink nor Microsemi could be reached for comment on Wednesday.

Zarlink has played its cards close to its chest since Microsemi filed its bid on August 17. And while Zarlink Chairman Adam Chowaniec has not named names, the market suspects big industry names may want to buy some or all of the company.

Several industry giants are either involved in or entering the medical device technology area where Zarlink seeks to grow. They include Intel, Texas Instruments, Qualcomm and Integrated Device Technology.

LONG COURTSHIP

Microsemi has been courting Zarlink since January.

Before it took its hostile offer to shareholders, it said it might pay as much as C$3.55 a share for Zarlink under certain conditions, although it indicated more recently that it might walk away when the current offer expires.

Few expect the saga to end that easily.

"I still think there's a high probability you'll see a white knight step up," said an industry analyst who preferred not to be named.

Failing that, he said "the expectation is that if Zarlink can't line up a friendly buyout, they might go friendly (with Microsemi) at C$3.55."

Zarlink said last week that Microsemi was going to challenge a shareholder rights plan it put in place to defend against hostile takeover.

That issue won't go before regulatory authorities until early October, however, signaling Microsemi may extend its offer on Thursday so it can bide its time to see if another bid emerges.

"We are still quite confident that a higher bid will eventually emerge," said shareholder Mo.

(Additional reporting by Pav Jordan; editing by Janet Guttsman)

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