July 20, 2011 / 10:20 AM / in 6 years

UPDATE 3-Microsemi goes public with $548.7 mln Zarlink bid

* Offer Values Zarlink at C$3.35/shr, 40 percent premium

* Says two earlier proposals rejected by Zarlink

* Microsemi sees deal to add to its earnings immediately

* Sees deal boosting communications, medical business

* Microsemi sees Q3 sales at high end of view (Adds analyst quote, share movement, details on Zarlink customers,)

By Abhiram Nandakumar and Savio D‘Souza

BANGALORE, July 20 (Reuters) - Power management chipmaker Microsemi Corp on Wednesday made its $548.7 million cash offer for Zarlink Semiconductor Inc public, after the Canadian company spurned its two earlier proposals.

Microsemi offered C$3.35 for each Zarlink share -- a premium of 40 percent to Zarlink’s close Tuesday on the Toronto Stock Exchange -- as it looks to bolster its presence in the communications and medical markets.

Zarlink’s shares shot up to C$3.69, their highest in 7 years, and was the most actively traded stock on the Toronto Stock Exchange, as investors bid up the stock in anticipation of a higher offer. Microsemi’s shares were up half a percent at $20.05 in morning trade on Nasdaq.

Microsemi first approached Zarlink in January and an offer worth C$3.00 per share was rejected by Zarlink’s Chief Executive Gary Tanner, who took command in May, Microsemi’s Chief Strategy Officer, Steve Litchfield, said on a conference call.

Microsemi then raised its bid and said it could pay C$3.25-C$3.55 a share, which was also rejected without any discussions, Microsemi said.

“Your continued refusal to discuss our proposal compels us to directly inform your shareholders of our attractive proposal,” Microsemi’s Chief Executive Officer, James Peterson, wrote in a letter to Zarlink’s board of directors.

Zarlink did not immediately return calls or mail seeking comment.

Raymond James analyst Steve Smigie reckons the chances of the deal falling through are slim.

“Microsemi is pretty interested in it. I do know that if this one doesn’t work out, they’ll go for something else. They seem to have developed a taste for acquisitions,” he said.

Microsemi, which has made six acquisitions since the start of 2010, including two so far this year, said it expects the Zarlink deal to add at least 20 cents a share to its earnings.

Any rival bid, however, would have to come at a high premium. According to Thomson Reuters Starmine, Microsemi’s offer values the company at nearly 17 times forward earnings, which is 30 percent more than the sector average.

ENTER NEWER MARKETS

Microsemi’s power management chips are used mainly in the aerospace, defense security, industrial and alternative energy markets to protect from voltage spikes and to amplify signals.

Ottawa-based Zarlink gets roughly 80 percent of its revenue from the communications sector and about 13 percent from the medical sector.

Zarlink’s chips deliver voice services, while its timing technology manages delay-sensitive services for telecom companies like Alcatel-Lucent , Nokia-Siemens , and equipment makers like ZTE Corp and Cisco .

Its low-power radios provides a wireless link between implanted medical devices like pacemakers and home health monitoring systems. It counts St.Jude Medical and Medtronic as its customers.

About 80 percent of Zarlink’s revenue comes from the UK, and the company is targeting new markets like Russia and Eastern Europe.

Microsemi also said it expects net sales for the June quarter to be at the high end of its outlook of a growth of 3-5 percent.

Microsemi said it had committed financing of about $425 million from Morgan Stanley Senior Funding Inc and, and that it had retained Stifel Nicolaus Weisel and Morgan Stanley & Co LLC as its financial advisers. (Editing by Saumyadeb Chakrabarty)

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