Microsemi Corporation Announces Superior Proposal to Acquire PMC-Sierra, Inc. for $11.50 Per Share With Intent to Close in December 2015 - Produces significant scale with $1.75 billion of combined LTM revenue
- Anticipates more than $100 million in annual cost synergies, with $75 million in first full quarter
- Delivers immediate accretion with more than $0.60 EPS expected in first full year
- Creates industry-leading 60/30 profitability model
- Complements optical and switching portfolios, accelerates existing data center growth effort
- Reaffirms fiscal fourth quarter 2015 business outlook
Aliso Viejo, Calif. - Microsemi Corporation (Nasdaq: MSCC), a leading provider of semiconductor solutions differentiated by power, security, reliability and performance, today announced that it submitted an offer to acquire PMC-Sierra, Inc (Nasdaq: PMCS) in a cash and stock transaction. Based on the closing stock price of Microsemi on Oct. 16, 2015, the transaction is valued at $11.50per PMC share, representing a premium of approximately 50 percent to the closing price on Oct. 5, 2015, the last trading day prior to the announcement of PMC's proposed acquisition with Skyworks Solutions, Inc.
Microsemi believes its cash and stock proposal would provide PMC shareholders with a substantial premium and immediate cash value, as well as the opportunity to participate in the significant upside potential of a global analog and mixed-signal leader with a highly diversified platform for growth and profitability. Microsemi believes its proposal constitutes a "Superior Proposal" under the terms of PMC's merger agreement with Skyworks.
Under the terms of Microsemi's proposal, PMC shareholders will receive $8.75 in cash and 0.0736 of a share of Microsemi common stock for each share of PMC common stock held at the close of the transaction. The implied total transaction value is approximately $2.4 billion and the implied enterprise value is $2.2 billion, net of PMC's net cash balance as of June 27, 2015.
"Based on extensive discussions with PMC over the past 18 months and comprehensive analysis, we believe this transaction offers compelling strategic and financial benefits for the shareholders of both Microsemi and PMC," said James J. Peterson, Microsemi's chairman and CEO. "This acquisition will provide Microsemi with a leading position in high performance and scalable storage solutions targeted for data center and cloud applications, while also adding a complementary portfolio of high-value communications products. Microsemi has a strong track record of integrating acquisitions and driving profitability, and we will benefit from increased scale, industry-leading margins, diversified market exposure, consolidated infrastructure and substantial cost savings in a combination with PMC."
The proposal was conveyed in an offer letter to PMC's board of directors on Oct. 19, 2015, together with a copy of a merger agreement, which is on substantially the same terms as the Skyworks merger agreement that Microsemi is prepared to sign. Microsemi is also prepared to amend the transaction structure to an "exchange offer" paving the way for a closing as early as late December 2015, assuming swift action by PMC's board. Microsemi's proposal is not subject to any financing contingency and has been approved by Microsemi's board of directors.
The transaction is expected to be immediately accretive to Microsemi's non-GAAP EPS and free cash flow. Microsemi anticipates achieving more than $100 million in annual cost synergies with greater than $75 million of those to be realized in the first full quarter of combined operations. Microsemi currently estimates more than$0.60 of non-GAAP EPS accretion in the first full year after closing the transaction.
Microsemi intends to fund the transaction and repay its existing credit facility with existing cash, $2.7 billion in new transaction debt and $0.6 billion in Microsemi common stock. Shareholders of Microsemi and PMC will own approximately 85 percent and 15 percent, respectively, of the combined entity post completion of the transaction.
The transaction with Microsemi will only be subject to domestic regulatory approvals (as opposed to approvals by foreign government entities including China, which is required under the Skyworks merger agreement and likely to result in additional uncertainty and delays) and customary closing conditions, as well as the approval of PMC's shareholders.
Stifel is acting as exclusive financial adviser to Microsemi, along with O'Melveny & Myers LLP who is serving as legal adviser. Morgan Stanley Senior Funding, Inc. is providing committed financing for the transaction to Microsemi.
Reaffirms Fiscal Fourth Quarter 2015 Business Outlook
Microsemi currently expects net sales in the fourth quarter of fiscal year 2015 to be approximately $328 million, and expects non-GAAP diluted earnings per share of between $0.72 and $0.74. This is in line with Microsemi's previous guidance.
Microsemi regularly announces a quarterly outlook in the form of issuing a news release and does not undertake to update any of this information between such public announcements to reflect subsequent events or circumstances. Please refer to the "Cautionary Note Concerning Forward-Looking Statements" below for risks that may affect future actual results.
A live webcast relating to the proposed transaction will be available in the "Investors" section of Microsemi's website at www.microsemi.com. The event information will be posted to the website 30 minutes prior to the webcast time. In addition, an accompanying presentation will be hosted on the homepage of Microsemi's website.
Webcast date: Oct. 19, 2015
Time: 8:30 a.m. EDT
To participate in the conference call by telephone, call 877-264-1110 at approximately 8:15 a.m. EDT (5:15 a.m. PDT). International callers can call 706-634-1357. Please provide the following ID number: 58449988.
A replay of the webcast will also be available in the "Investors" section of Microsemi's website.
Letter to PMC's Board
The following is the full text of the letter Microsemi sent to the PMC board regarding its offer:
October 19, 2015
Board of Directors
1380 Bordeaux Drive
Sunnyvale, CA 94089
To the Members of the Board:
As you are aware, over the past 18 months, Microsemi Corporation has pursued a transaction with PMC-Sierra, Inc ("PMC"). We believe the combination of our two companies has tremendous strategic value in addition to cost synergies of approximately $100 million in the first year. This transaction is a strategic priority for us, and we believe a business combination with Microsemi will deliver significant benefits to your shareholders.
We are pleased to submit this proposal to acquire all of the outstanding shares of PMC common stock for consideration of (i) $8.75 in cash and (ii) 0.0736 of a share of Microsemi common stock for each outstanding share of PMC common stock. Based on Microsemi's closing stock price on October 16, 2015, the merger consideration is valued at approximately $11.50 per PMC share, representing a premium of approximately 50% to PMC's closing price on October 5, 2015, the last trading day prior to the announcement of your proposed transaction with Skyworks Solutions, Inc ("Skyworks"). As a result of our proposal, your shareholders will receive cash at closing as well as ownership of 15% of the combined company, providing continued "upside" and allowing them to participate in the substantial synergies available as a result of the combination.
Our proposal is clearly a "Superior Proposal" as defined in your merger agreement with Skyworks. First, Microsemi's proposal provides a higher value per share to PMC's shareholders than the proposed Skyworks transaction and is therefore more favorable to PMC's shareholders than the proposed transaction with Skyworks. Second, Microsemi is prepared to effectuate the acquisition of PMC by means of a two-step exchange offer. We believe that this structure will provide an even faster path to closing than the one-step merger structure proposed by Skyworks and shall pave the way to a closing in late December 2015. Finally, a transaction with Microsemi will only be subject to domestic regulatory approvals (as opposed to approvals by foreign government entities including China, which is required under the Skyworks merger agreement and likely to result in additional uncertainty and delay). In connection with regulatory approvals, based on our analysis, we do not believe that a transaction between Microsemi and PMC would give rise to antitrust or regulatory issues.
To sum, Microsemi's proposal is clearly superior to the proposed transaction with Skyworks on the basis of value, speed and certainty.
We are including with this letter a proposed merger agreement which is substantially identical to the terms of your announced merger agreement with Skyworks, but which makes certain modifications to reflect our proposed cash and stock consideration and the acceleration and cash out of all PMC stock options.
Microsemi's Board of Directors has approved this proposal, including the proposed merger agreement. Microsemi's proposal is not subject to any conditions other than limited conditions set forth in the attached proposed merger agreement. Finally, we have obtained fully committed financing and do not have any additional diligence remaining.
We are simultaneously releasing this letter to the public. Our offer will now be subject only to your decision to execute the merger agreement. We expect a timely review of our proposal, and look forward to consummating a mutually beneficial transaction.
James J. Peterson
Chairman of the Board & Chief Executive Officer
Microsemi Corporation (Nasdaq: MSCC) offers a comprehensive portfolio of semiconductor and system solutions for communications, defense & security, aerospace and industrial markets. Products include high-performance and radiation-hardened analog mixed-signal integrated circuits, FPGAs, SoCs and ASICs; power management products; timing and synchronization devices and precise time solutions, setting the world's standard for time; voice processing devices; RF solutions; discrete components; security technologies and scalable anti-tamper products; Ethernet solutions; Power-over-Ethernet ICs and midspans; as well as custom design capabilities and services. Microsemi is headquartered in Aliso Viejo, Calif., and has approximately 3,600 employees globally.
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