July 27, 2011 / 3:33 PM / 8 years ago

Zarlink seeks alternatives to Microsemi bid

OTTAWA/TORONTO (Reuters) - Zarlink Semiconductor Inc has been in touch with possible new suitors as it fends off an unwelcome $548.7 million takeover approach from U.S. chipmaker Microsemi Corp.

Microsemi, an Irvine, California-based power management chipmaker, proposed last week to buy Ottawa-based Zarlink for C$3.35 a share, driving shares of Zarlink to a seven-year high even after the company said the offer was too low.

Zarlink’s chairman, Adam Chowaniec, told Reuters at the company’s annual shareholders’ meeting in Ottawa that a lot of Zarlink’s partners and peers have contacted the company and “are obviously looking to see if there’s something of value to them in this process”.

Zarlink plans to conduct a strategic review of alternatives as quickly as possible, and said it may yet seek to remain an independent business.

Chowaniec said it was his understanding that Microsemi had spoken with Zarlink’s bankers but had not signed a non-disclosure agreement. He said no discussions with Microsemi were planned.

Shares in Zarlink were up 1.4 percent at C$3.66 at mid-afternoon Wednesday, above the Microsemi offer price, suggesting shareholders expect a higher offer to emerge.

The volume of shares changing hands since Microsemi announced its latest approach last week means the shareholder base has completely turned over, Chowaniec said.


One investor who has held on is Martin Ferguson, a portfolio manager at Mawer Asset Management. Ferguson said he thinks Zarlink should talk to Microsemi while weighing other options.

“If you have a strategic buyer that can find synergies or cost savings, the value of Zarlink to that buyer may be worth more than Zarlink (is worth) on a standalone basis,” he said.

He expects Microsemi to bide its time to see if other bids emerge before deciding whether to up its bid.

Sonja Kesten, a small shareholder who hopes to get more women on the board and in senior management, was happy that Microsemi’s bid had pushed Zarlink’s shares higher but wanted to wait to see if any higher offers emerged.

“If you’re selling something, the less rush you have, the better off you are, said BMO Capital Markets analyst Brian Piccioni. “The flip side is there’s a lot of new shareholders who are probably keen to see a transaction ... there’s an infinite number of ways this thing could end.”

It was the third proposal from Microsemi since it first approached the Canadian chipmaker in January, when it proposed a takeover deal that valued Zarlink at C$3 a share.

In written proposals, Microsemi has said it is willing to pay as much as C$3.55 a share for Zarlink, pending due diligence and confirming certain assumptions.

Zarlink said on July 22 it had hired RBC Capital Markets and Canaccord Genuity as advisers for its strategic review of alternatives.

Zarlink, which adopted a “poison-pill” takeover defense strategy on Monday, said there are no assurances the review will lead to a transaction.

Chowaniec’s comments came after Zarlink reported a 77 percent drop in first-quarter net profit and said it sees demand slowing for its communications products.

Zarlink’s main communications products, including line circuits and network timing and synchronization products, are used by telecom and cable companies to deliver bundled voice, video, data and mobile services.

A smaller share of its sales are in medical, where it provides ultra low-power radios for implanted medical devices such as pacemakers.

Additional reporting by Abhiram Nandakumar in Bangalore, writing by Alastair Sharp; Editing by Frank McGurty and Peter Galloway

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