The Transmeta Deal: Why?

The benefits of bidding adieu to the public market are pretty obvious in today's climate, but Silicon Valley chipmaker Transmeta Corp.'s (TMTA) agreement to be acquired for $255.6 million in cash by privately held Novafora Inc. has left some on Wall Street scratching their heads.

Philip Zera, an analyst with Algorithm Capital, argues that the price tag, which will amount to between $18.70 and $19 per share based on certain adjustments, is far too low.

"Excluding cash, the company is receiving just over $11 million for its entire portfolio of valuable technology that has been developed over ten years at a cost in excess of $400 million," he wrote in a research note today.

Zera went on to question the advantages of combining the two companies' product sets.

"Novafora is a developer of digital video microprocessors. Transmeta is a licensor of power management technologies," he wrote. "We do not see the synergy between the two companies."

Granted, Transmeta did get a significantly higher price than the $190 million that was offered in February by shareholder Riley Investment Management LLC. Following that bid, the company hired Piper Jaffray & Co. to find a buyer. But it isn't particularly clear how combining the two companies will produce a powerful integrated technology product.

So why did Transmeta agree to the deal? Zera argues that Bryant's 10% stake in Transmeta was purchased for an average of around $13 per share, so an $18.70 offer probably sounds pretty good to the firm. Riley Investment president Bryant Riley sits on Transmeta's board, so he certainly had some influence on the sell decision, the analyst posits.

Zera says he was surprised that a venture capital firm or private equity firm didn't take Transmeta private and reenter the public markets once the chip cycle entered an upswing. While this doesn't happen very often, as chip companies are notoriously cash-hungry, VantagePoint Venture Partners embarked on just such a transaction in 2003 when the firm acquired Aviza Technology Inc., formerly a unit of Dutch chip equipment maker ASML Holdings NV, in 2003. Aviza eventually went public in a back-door listing.

All that said, it appears this would be the end of the story for this deal. Piper Jaffray took several months to sell Transmeta, so it seems doubtful another bidder will materialize.

Novafora's advisors in on the deal were GCA Savvian and the law firms of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,  Gross Kleinhendler Hodak Halevy Greenberg & Co. and Davis Polk & Wardwell LLP. -- Olaf de Senerpont Domis

Comments

[Will Grubb:]

When Transmeta first hit the market it was a processor company .. low power high performance CPU company. Mating with someone who has graphics/video IP seems a natural enhancement, and in my opinion, makes the combination a stronger competitor.

2008 Nov 20 11:20 AM