Microchip Technology Inc. said it has offered to buy Micrel Inc. for $839 million to gain its portfolio of power management and communication products in addition to cross-selling opportunities across a wide range of markets, including industrial and automotive.
The transaction is expected to help Microchip solidify relationship with current OEMs and contractor customers while opening up access to new market segments. The company sells microcontrollers, mixed-signal analog, flash IP solutions and memory devices and believes the addition of Micrel’s linear, power management, LAN solutions and timing & communications products would offer customers “a broader range of innovative solutions,” according to a statement issued to customers.
“We are pleased to have Micrel become part of the Microchip team. Micrel’s portfolio of Linear and Power Management products, LAN solutions and Timing and Communications products, as well as their strong position in the Industrial, Automotive and Communications markets, complement many of Microchip’s initiatives in these areas,” said Steve Sanghi, President and CEO of Microchip Technology in a statement announcing the purchase. “We believe that combining Micrel’s business with Microchip’s business will enable significant synergies and cross selling opportunities.”
Micrel was founded 37 years ago and had been led since then by Raymond Zinn who helped build it into a $248 million revenue business. The company has struggled in recent years, however, with sales growth sliding year-over-year, putting net profits and its market valuation under pressure. In 2014, Micrel reported net income of $13.6 million, or 25 cents per share, down from $33.9 million, or 54 cents per share, in 2013.
In January, Micrel said it had constituted a transactions committee to conduct a “comprehensive review of strategic alternatives to enhance value for shareholders” partly in response to downward pressure on its market value as a result of its failure to increase sales. It later postponed its annual shareholders meeting while conducting the review.
“Given our unique and valuable assets, as well as our strong position in the marketplace, we believe now is an opportune time to conduct a thorough review of our strategic alternatives to determine the best path, including our standalone plan, to maximize shareholder value," said Zinn, Micrel’s chairman and CEO in a statement announcing the decision.
Microchip reportedly worked with Micrel’s “transactions committee” to quickly wrap up its purchase offer. The companies said the transaction has been approved by the Microchip’s and Micrel’s board of directors and expect the deal to close in the third quarter.
Under the terms of the transaction Microchip will pay $14 per share for Micrel, a 3 percent premium on Micrel’s closing price one day before the deal was announced but a 30 percent hike on the company’s market value “the day Starboard Value LP disclosed a 12 percent interest in Micrel in a Schedule 13D filing with the SEC,” according to the companies.
“We believe that this acquisition provides the best vehicle for us to realize significant value for Micrel’s shareholders and is a fantastic outcome for our employees and customers, as well as the opportunity to scale up to the much stronger sales and manufacturing platforms of Microchip,” said Micrel’s Zinn.