Exclusive: PMC-Sierra has held talks with potential buyers: sources

NEW YORK Wed Apr 4, 2012 5:31pm EDT

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NEW YORK (Reuters) - U.S. chipmaker PMC-Sierra Inc (PMCS.O), under pressure from an activist investor, has held discussions with potential buyers in recent months, according to two people with knowledge of the matter.

Prospective suitors have been slow, however, to warm to PMC's diverse portfolio, which straddles sectors as varied as wireless and optical networking, as well as storage technology, said the sources, who requested anonymity because the talks were private.

A deal with PMC, which has a market value of $1.6 billion, is not considered imminent, they said. The sources declined to name the parties PMC has had talks with.

Shares of PMC closed up more than 8 percent on Wednesday, at $7.69, on the Nasdaq.

"The fact is they should be broken up to maximize the probability of selling it," said one source.

Goldman Sachs is advising PMC on its strategic options, which could include a sale, one of the sources said.

PMC, which is based in Sunnyvale, California, did not return calls for comment. Goldman Sachs declined to comment.

In January, shareholder activist Ralph Whitworth, founder of Relational Investors, disclosed in a filing with regulators that the firm had bought a 7.17 percent stake in PMC.

At the time, Relational described PMC's shares as undervalued, saying the company may need to consider "broader strategic alternatives."

Whitworth has pushed for change at a number of semiconductor companies, including National Semiconductor Corp, which sold for $6.5 billion to Texas Instruments Inc (TXN.O) last year, and Freescale Semiconductor (FSL.N), which was acquired by a private equity consortium in 2006 and re-entered the public markets in 2011.

Over the last decade, PMC has become a leader in the server storage market, which counts for more than half of its sales, competing with LSI Corp LSI.N.

Although the buyer universe for PMC is limited, the people familiar with the matter said Marvell Technology Group Ltd (MRVL.O) and Broadcom Corp (BRCM.O) are logical bidders for the whole company.

Marvell is no stranger to shareholder pressure. With a shareholder list that includes Dan Loeb's $8.9 billion hedge fund, Third Point LLC, one source close to the matter said, there have been internal demands for the chip company to look at ways to spend its roughly $800 million worth of cash.

Third Point and Marvell were not immediately available for comment. Broadcom declined to comment.

PMC most recently purchased technology from Maxim Integrated Products Inc (MXIM.O), and is expected to evolve its multi-gigabit products over the next 12 months.

PMC has also showed commitment to its optical and wireless segments, spending $240 million in 2010 when it purchased U.S-Israeli-based rival Wintegra to offset the weakness in its WAN infrastructure segment.

Still analysts have said the optical segment shows very few signs of a pickup.

"PMC's optical side is a legacy business, which is going away. The optical industry is shifting to next generation optical and that is yet to ramp up for PMC," Brendan Furlong, an analyst at Miller Tabak & Co said.

"Can they continue to pump the very high R&D levels in this segment? Probably not because it is getting prohibitively expensive for a small company like PMC-Sierra."

(Reporting By Nadia Damouni)

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