OK, first the name, because weeks or even days from now it may no longer exist. Zarlink (TSX:ZL) comes from “Tsar of Links”, and reflects the Ottawa semiconductor manufacturer’s early history in networking equipment.
On Wednesday, the company, which was born out of the telecommunications division of tech legend Terry Matthew’s Mitel and has been an Ottawa stalwart for decades, announced it had received and rejected an unsolicited bid from Irvine, California based Microsemi (NASD:MSCC)
In a press release, Zarlink management confirmed that it had received an “unsolicited non-binding proposal from Microsemi Corp. to acquire all of the outstanding shares of Zarlink for $3.35 a share in cash” and had “received two previous unsolicited, non-binding expressions of interest from Microsemi dated May 20, 2011, and June 17, 2011, for $3 and $3.25 a share, respectively.”
While the board’s decision, it said, was unanimous, shares of Zarlink rocketed on Wednesday, closing up 50% to $3.60 as more than twenty-six million shares changed hands. The real reason may have been the open ended language of the denial in its official press release, which certainly didn’t close any doors on the proposal.
“The Zarlink board has always been prepared to consider and pursue strategic transactions or plans” said Adam Chowaniec, Zarlink’s Board Chairman, adding that “…the company will will consider all appropriate alternatives which capture the true value of the company for its stakeholders…”
But that subtle opening clearly wasn’t enough rope for Microsemi. After being rebuked by the board twice, it is now appealing directly to the shareholders of Zarlink. In a letter to Zarlink’s board, Microsemi’s CEO James Peterson, said “Your continued refusal to discuss our proposal compels us to directly inform your shareholders of our attractive proposal,”
Microsemi was founded in 1960, and is based in Irvine, California. The company recorded just over half a billion in revenue in 2010, through selling circuits and chips for the defense, security and aerospace industries. The company has been on a bit of acquisition spree of late, wrapping up acquisitions of AML Communications in May, and ASIC Advantage in July.
In the aforementioned letter to the Zarlink board, Peterson noted that Microsemi is “committed to investing in Zarlink’s business to capture future growth opportunities.”
Those opportunities may be more appealing since Zarlink subtly shifted focus of late, entering more specialized markets that leverage expertise the company has gained over three decades.
Recent acquisitions and joint ventures moved Zarlink’s away from the general chip business and into more specialized businesses, in particular ones that leverage the company’s leadership position in low-voltage technology. Situations where low power requirements are important is Zarlink’s wheelhouse, and those seem to be everywhere now, including specialized items to medical devices, devices used in smart phones and in the company’s most recent venture; a deal with CADEKA Microcircuits to tackle the CCTV and video surveillance market.
These changes have allowed the company to grow from $183 million in revenue in 2008, where they posted an $.18 cent loss, to $230 million in fiscal 2011, a year the Zarlink posted earnings of $.37 cents a share.