January 27, 2015 / 11:45 AM / 3 years ago

Lattice Semi to buy Silicon Image for $600 million

(Reuters) - Connectivity chip maker Lattice Semiconductor Corp (LSCC.O) said it would buy Silicon Image Inc SIMG.O to gain technology that connects smartphones and tablets to TVs and digital projectors.

Lattice Semiconductor is offering $7.30 per share, a premium of 23.7 percent to Silicon Image’s Monday close, valuing the company at about $600 million.

“What you have here are two sub-scale companies that create a lot of scale in combining and I would say there is very little product overlap,” Dougherty & Co analyst Charles Anderson said.

“It’s a type of transaction that has gained a lot of favor recently.”

For example, Avago Technologies Ltd (AVGO.O) said in December it would buy LSI Corp LSI.O in one of the semiconductor industries’ largest deals of 2014.

RF Micro Devices Inc RFMD.O bought TriQuint Semiconductor Inc TQNT.O last year, while Cypress Semiconductor Corp (CY.O) said it would buy peer Spansion Inc CODE.N.

Anderson said he expected other semiconductor companies to look at similar transactions.

Silicon Image, under pressure from activist hedge fund Engaged Capital LLC, had been exploring strategic alternatives including a sale, sources told Reuters this month.

The company said in December that it expects a year-over-year revenue decline of about 10 percent in 2015 due to a reduction in mobile design wins at one of its largest customers.

Lattice said it would finance the deal through cash and debt, $350 million of which it expects to raise from Jefferies Finance LLC.

The deal is expected to add to Lattice’s earnings on a non-GAAP basis with $32 million in savings within a year.

Lattice said on Tuesday it expected fourth-quarter revenue to be about flat to down 4 percent from third-quarter revenue of $86.6 million.

Silicon Image forecast revenue of $61 million-$66 million for the fourth quarter.

Jefferies LLC is the financial adviser to Lattice while Skadden, Arps, Slate, Meagher & Flom LLP is its legal adviser.

Barclays Plc is the financial adviser to Silicon Image while Fenwick & West LLP is its legal adviser.

Silicon Image shares were up 23.4 percent at $7.28 while Lattice Semiconductor share were up 10.3 percent at $7.27 on the Nasdaq on Tuesday.

Reporting by Kshitiz Goliya and Abhirup Roy in Bengaluru; Editing by Don Sebastian and Joyjeet Das

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