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By Andy Obermueller

A company I recommended back in May was Zarlink (OTC:ZLKKF), of which I wrote:

Zarlink makes computer chips, but it is also a critically important health-care company. You see, 80 million Americans, including myself, have high blood pressure. Zarlink's Medical Implant Communications Service, a wireless radio technology, is part of the world's first implanted device to treat hypertension and heart failure. Zarlink chips are extremely low-power, and it's the industry's only provider of standards-compliant radio chips for the healthcare market. It's where companies like CVRx (a venture-stage group in Minneapolis that developed the blood-pressure system) must turn as they create innovative new wireless products. All of these products will need chips, and Zarlink is the go-to supplier. It's a $300 million company that has already shipped more than a billion chips.

This was all perfectly true in May. The only significant update is the company is now worth at least $550 million, which is what a company called Microsemi Corp. (NASDAQ:MSCC) has offered for it. Microsemi, which has pulled off two recent successful acquisitions and evidently has solid financial backing, is taking its Zarlink offer straight to shareholders after management spurned two previous offers. Microsemi is willing to open its checkbook to buy some expansion in the communications and health care markets. Offer No. 1 was turned down. Offer No. 2 -- which was $0.30 a share higher -- was also turned down, without discussion.

Zarlink looks like a perfect fit for Microsemi's purposes. Most of its revenue is from communication chips, which help telecom and cable companies deliver bundled voice, video, data and mobile services, according to Reuters. A little less than a fifth of its top line comes from the medical chips -- for everyday devices like pacemakers as well as the niftier breakthrough stuff in development -- though that's likely where the growth lies.

This is a deal I fully expect to get done. Microsemi is looking for growth, it clearly has a plan to achieve it and it has the cash and most importantly the credit to carry out the deal, which will, the company says, have an immediate impact on earnings.

For conservative investors, the best advice is to sell now. The short-term rise from $2.44 when I recommended the shares, to the current market price of roughly $3.75, is a good run. No one ever went broke taking a profit, and that's a pretty good one. On the other hand, investors might want to consider the fact that another round of offers appears likely, and there may be additional upside. There may well be significant additional upside.

More sophisticated investors sitting on these shares might want to sell half their position to protect gains and hang onto the rest, with a sell-stop at a certain point to protect any gains. More aggressive investors convinced of Zarlink's potential might want to add some shares immediately and hang on for any upswing that stems from an increased offer.

Disclosure: Neither Andy Obermueller nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

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Source: Zarlink Looks Ripe for Microsemi's Picking