Chips Ahoy! Microsemi Will Pay Up for PMC-Sierra
It's Merger Monday as Microsemi Corporation joins the fray with a bid to acquire chipmaker PMC-Sierra Inc (see below). Those animal spirits aren't rubbing off on the broad market, however, with the Dow Jones Industrial Average and the S&P 500 down 0.12% and 0.08%, respectively, at 12 p.m. EDT.
PMC-Sierra provides solutions for large-scale data centers.
A week ago, Dell Inc proposed the largest technology M&A transaction of all time, with a $67 billion offer for EMC Corporation . Animal spirits beget animal spirits, and today, Microsemi announced an unsolicited offer to acquire PMC-Sierra, which values the chipmaker's equity at $2.4 billion for an enterprise value of $2.2 billion (i.e., net of PMC's net cash position).
In doing so, it is seeking to disrupt the acquisition offerSkyworks Solutions Inc agreed to with PMC-Sierra, which was announced two weeks ago.
The offers are not equivalent. Skyworks put forward an all-cash offer worth $10.50 per share. Microsemi is offering $8.75 in cash plus 0.0736 of a Microsemi share for each PMC share. Based on last Fridays' closing price for Microsemi's stock, the offer was worth $11.50, a 50% premium to PMC's stock price prior to the announcement of Skyworks' offer.
The market appears to have made an unambiguous appraisal regarding who, of Microsemi or PMC's shareholders, are getting the better end if Microsemi were to acquire PMC-Sierra on those terms: Microsemi's stock was trading at $35.25 at 11:20 a.m. EDT, down 5.7%. That decline lowered the value of Microsemi's offer to $11.34. Meanwhile, PMC's stock was changing hands at $11.66, up 13.9% on the day.
In addition, the fact that PMC's stock is trading through the value of the offer indicates that the market expects the contest pitting Microsemi against Skyworks to produce a better offer.
That would be an excellent result for PMC-Sierra shareholders; the current price is already a nine-year high and represents 19.3 times the next 12 months' estimated earnings per share. The winning bidder, on the other hand, may end up suffering the winner's curse.
This $19 trillion industry could destroy the Internet
One bleeding-edge technology is about to put the World Wide Web to bed. And if you act quickly, you could be among the savvy investors who enjoy the profits from this stunning change. Experts are calling it the single largest business opportunity in the history of capitalism... The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Don't be too late to the party -- click here for one stock to own when the Web goes dark.
The article Chips Ahoy! Microsemi Will Pay Up for PMC-Sierra originally appeared on Fool.com.
Alex Dumortier, CFA , has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
Copyright © 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy .