When The Dust Settles, Microsemi Should Continue To Stand Out
Stephen Simpson, CFA
Stephen Simpson, CFA
Microsemi Bigger And Better, But Has Work To Do
Stephen Simpson, CFA
Stephen Simpson, CFA
Tue, Nov. 22, 10:17 AM
- Previously (November 2) – Microsemi +10%; Skyworks approach, initiation of sale process reported
- Analyst William Stein suggests an EV/EBITDA calculation registers $90 per share and EV/Sales comes in at $74.
- Skyworks interest had been indicated among initial reports, though also considers Infineon Technologies (OTCQX:IFNNF), Marvell Technology Group (MRVL +0.8%) and STMicroelectronics (STM +2.9%) possible acquirers.
- Rates Microsemi (MSCC +2.4%) at Buy with a $58 price target (current price $56.03).
- Previously (October 24) – Microsemi's takeover-appeal observed at RBC Capital Markets
Wed, Nov. 2, 5:32 PM
Mon, Oct. 24, 4:17 PM
- Analysts Mitch Steves and Amit Daryanani rate Microsemi (NASDAQ:MSCC) a "Top Pick" with a $48 target (current price $40.36).
- In considering the semiconductor sector on broad terms, the analysts believe mid-cap companies such as Microsemi present attractive opportunities to larger names on margin profiles and valuations. For Microsemi specifically, Texas Instruments (NYSE:TXN), Broadcom (NASDAQ:AVGO) and Maxim Integrated Products (NASDAQ:MXIM) are offered as potential acquirers, with Texas Instruments making the "most sense."
- Should Microsemi's leverage reduce from a current 3.7x level toward a 3x level, the analysts project the company at that point to firmly represent an attractive target.
Wed, Mar. 23, 4:32 PM
- Analog/mixed-signal and telecom chipmaker Microsemi (NASDAQ:MSCC) is selling its embedded security, RF/microwave, and custom microelectronics businesses to embedded processing module/subsystem maker Mercury Systems (NASDAQ:MRCY) for $300M in cash.
- The deal is expected to close in calendar Q2. Microsemi declares the sale frees up capital "for the ongoing development of proprietary, higher-value solutions for our aerospace & defense, communications, industrial and storage end markets," and pay down debt raised to finance the PMC-Sierra acquisition. The company also uses the occasion to affirm its FQ2 (calendar Q1) guidance.
- Mercury notes the acquired businesses had revenue of $100M and adjusted EBITDA of $28M in Microsemi's FY15 (ended last September), and predicts the deal will be "highly accretive" to its FY17 (ends June '17) EPS and adjusted EBITDA margin. It's paying for the purchase via $50M in existing cash + a $265M term loan, and also taking out a $75M credit facility that won't be tapped for now.
- Mercury: "The transaction adds secure solid-state storage to our array of industry-leading, pre-integrated processing subsystems capabilities. It nearly doubles the size of our RF and Microwave business, adding new capabilities, scale and synergies. In addition, it provides us with new capabilities in embedded security and mixed signal system-on-chip processing. All these capabilities are highly aligned with our business from a strategic perspective..."
- Microsemi is unchanged after hours. Mercury is up 3% to $16.99.
- PRs: Microsemi, Mercury Systems
Mon, Jan. 11, 9:35 AM
- Microsemi (NASDAQ:MSCC) now expects FQ1 revenue to to be near the high end of a $325M-$329M guidance range; consensus is at $326.2M. FQ1 results are due on the afternoon of Jan. 28.
- The company adds it has obtained (through a $450M debt offering and credit facility commitments) the financing needed to close its $2.5B cash/stock purchase of PMC-Sierra (NASDAQ:PMCS), and has also seen the end of a U.S. antitrust waiting period. Closing is expected on Friday.
- Microsemi reiterates its goal of achieving $100M/year in deal synergies, with $75M achieved in the first full quarter of combined operations. As previously announced, Microsemi is paying $9.22 in cash and issuing 0.0771 shares for each PMC-Sierra share.
Nov. 24, 2015, 7:24 AM
- Microsemi (NASDAQ:MSCC) has agreed to buy PMC-Sierra (NASDAQ:PMCS) for about $2.5B just hours after Skyworks Solutions (NASDAQ:SWKS) said it won't modify its bid.
- The deal will see Microsemi pay $9.22 in cash and 0.0771 of a company share for each PMC common share, representing a 77.4% premium to PMC's closing stock price as of Sept. 30.
- Microsemi anticipates the transaction to achieve more than $100M in annual cost synergies and estimates approximately $0.60 of non-GAAP EPS accretion in the first full year after closing.
- PMCS +0.7% premarket
- Previously: Skyworks abandons deal for PMC (Nov. 24 2015)
Nov. 24, 2015, 6:21 AM
- Skyworks Solutions (NASDAQ:SWKS) has withdrawn its agreed takeover bid for PMC-Sierra (NASDAQ:PMCS) after an increased offer of $2.3B from Microsemi (NASDAQ:MSCC) gained the backing of the target's board.
- Skyworks said it won't modify its bid and that the company is entitled to a $88.5M termination fee from PMC.
- Semiconductor makers have pursued mergers at a record pace this year as surging costs for design and manufacturing, coupled with a shrinking customer base, have created a need to bulk up.
- Previously: PMC-Sierra board gives thumbs up to latest Microsemi bid (Nov. 19 2015)
Nov. 19, 2015, 7:24 AM
- Microsemi (NASDAQ:MSCC) says the PMC-Sierra board has informed the company that its revised proposal constitutes a "Superior Proposal" to that of Skyworks Solutions (NASDAQ:SWKS).
- That new proposal from yesterday upped the cash portion of the bid to $9.22 per share from $9.04, while keeping the stock portion at 0.0771 shares of MSCC.
- Skyworks has three days to revise its bid, or the merger agreement with it will be terminated.
- Previously: Microsemi boosts cash portion of bid for PMC-Sierra (Nov. 18)
Nov. 18, 2015, 7:33 AM
- The new proposal would pay $9.22 in cash and 0.0771 shares of MSCC stock for each share of PMCS. Based on yesterday's close, this values each share of PMCS at $12.05.
- The previous bid was for $9.04 in cash and the same amount of MSCC shares.
- The new deal would still be immediately accretive to Microsemi's non-GAAP EPS (by $0.60 in year one) and free cash flow.
- Previously: PMC-Sierra: Skyworks offer still superior to Microsemi bid (Nov. 2)
- PMCS +2.4% to $11.93 premarket; MSCC flat, Skyworks SWKS +1.1%
Nov. 2, 2015, 3:56 AM
- Putting some clarity to a two week bidding war, PMC-Sierra Inc (NASDAQ:PMCS) said Microsemi's (NASDAQ:MSCC) latest stock and cash proposal is not superior to Skyworks Solutions' (NASDAQ:SWKS) all-cash offer, which provides "more value certainty" to shareholders.
- The board of directors continues to recommend the amended and restated merger agreement with Skyworks to its shareholders.
- On Friday, Microsemi hiked its offer to buy PMC-Sierra to about $2.33B, topping a $2.27B proposal from Skyworks Solutions five hours after the latter raised its bid.
- Previously: Microsemi counters Skyworks' new deal for PMC with an $11.88/share offer (Oct. 30 2015)
- Previously: Skyworks, PMC-Sierra strike revised deal topping Microsemi's offer (Oct. 30 2015)
- Previously: Microsemi -6.3% following PMC-Sierra bid; Skyworks -2% (Oct. 19 2015)
- Previously: Microsemi offers to buy PMC-Sierra for $11.50/share, trumping Skyworks' bid (Oct. 19 2015)
Oct. 30, 2015, 12:45 PM
- Just a few hours after Skyworks (SWKS +3%) and PMC-Sierra (PMCS +3.1%) announced they'd agreed to a revised $11.60/share, all-cash, deal (topping Microsemi's $11.50/share bid), Microsemi (MSCC -2.3%) has unveiled an $11.88/share cash/stock offer.
- The offer consists of $9.04/share in cash + 0.0771 Microsemi shares for each PMC share. Microsemi expects a deal to add $0.60 in EPS in its first full year after closing, and to eventually produce over $100M/year in cost synergies. No word on whether Microsemi would foot the bill for the $88.5M termination fee PMC owes Skyworks if it abandons its current deal.
- Microsemi remains lower on the day, while Skyworks and PMC remain higher. PMC is trading near $12.00.
Oct. 30, 2015, 9:10 AM
- 11 days after Microsemi (NASDAQ:MSCC) unveiled an $11.50/share cash/stock offer for PMC-Sierra (NASDAQ:PMCS) that topped Skyworks' (NASDAQ:SWKS) $10.50/share deal with the company, Skyworks and PMC announce they've agreed to a revised $11.60/share, all-cash, deal.
- The termination fee has been hiked to $88.5M from $70M. As previously announced, Skyworks plans to finance the deal with a mixture of existing cash and debt.
- PMCS +2.9% premarket to $11.98, as markets bet the bidding war isn't over. SWKS +0.8% premarket to $75.25.
Oct. 19, 2015, 2:55 PM
- The Street isn't reacting favorably to analog/mixed-signal chipmaker Microsemi's (NASDAQ:MSCC) cash/stock offer to buy storage and telecom IC vendor PMC-Sierra (PMCS +13.7%). Following today's selloff, Microsemi's bid for PMC is worth $11.35/share. With PMC trading at $11.65, investors are betting Skyworks (NASDAQ:SWKS) will up its prior $10.50/share bid.
- S&P thinks Skyworks could raise its offer. However, Brean and Oppenheimer argue the company might walk away. Brean notes Skyworks sold off after the PMC deal was announced amid concerns about a lack of product synergies, and both firms observe Skyworks has taken a disciplined approach to M&A.
- For Microsemi, a PMC deal would further an M&A-driven product line expansion that has led the company to buy medical/telecom IC vendor Zarlink Semi ($525M), timing IC vendor Symmetricom ($230M), and most recently Ethernet chipmaker Vitesse ($389M). The company sees PMC adding over $0.60 to EPS in the first year after closing, thanks partly to over $100M in cost synergies. It would rely on both existing cash and $2.7B in debt to help finance the purchase.
- Raymond James' Mitch Steves has hiked his Microsemi target by $3 to $41 in response to the bid. "Overall, given the $0.60 in year one accretion and material cost savings ... we view the transaction as a positive. In addition, we came away with the following key takeaways from the Conference call: 1) leverage will remain reasonable at ~4x [trailing 12 month] EBITDA, 2) overall business is chugging along with Dec-qtr in-line with Street expectations due to [aerospace/defense]/Military/Industrial strength and 3) Vitesse cost synergies are ahead of plan giving additional comfort on cash flow metrics."
Oct. 19, 2015, 7:47 AM
- PMC-Sierra (NASDAQ:PMCS) +10.8% premarket after Microsemi (NASDAQ:MSCC) offers to buy the company for $11.50/share, or ~$2.4B, in an offer MSCC says is a "superior" proposal over last week's $2B offer from Skyworks Solutions' (NASDAQ:SWKS).
- Under MSCC's offer, PMCS shareholders would get $8.75 in cash and 0.0736 of a share of its stock for each PMCS share held; MSCC's offer represents a ~12% premium to PMCS's Friday close and ~50% above PMCS’ price on Oct. 5 before it agreed to the bid from SWKS.
- MSCC says a takeover of PMCS would let it expand its product offering and allow the combined company save more than $100M/year in expenses.
May 27, 2015, 3:00 PM
- Chip stocks are posting outsized gains (SOXX +4%) amid a 1.3% increase for the Nasdaq after the WSJ reported Avago and Broadcom are in advanced merger talks, sparking hopes for further M&A.
- A Broadcom/Avago deal would be worth ~$67B at current valuations, easily making it the largest in the chip industry's breathless consolidation wave. It would also touch markets ranging from smartphones to set-tops to servers to switches/routers.
- Notable gainers include Avago RF chip peers Skyworks (SWKS +4.3%), Qorvo (QRVO +3.2%), and Anadigics (ANAD +4.9%). Others include Micron (MU +3.8%), SanDisk (SNDK +4.3%), NXP (NXPI +3.5%), Silicon Motion (SIMO +8.3%), Cirrus Logic (CRUS +4.8%), STMicroelectronics, (STM +3.4%), Synaptics (SYNA +3.4%), Atmel (ATML +2.8%), Cavium (CAVM +4.5%), Intersil (ISIL +4.6%), Semtech (SMTC +3.9%), ON Semi (ON +3.8%), Microsemi (MSCC +4.4%), and IDT (IDTI +4.2%).
- Non-chipmakers tied to the industry are also doing well. Standouts include ARM (ARMH +4.4%), Amkor (AMKR +4.6%), ASML (ASML +3.1%), and Rambus (RMBS +3.3%).
- Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG
Mar. 19, 2015, 5:52 PM
- After rising 5.8% in regular trading today, specialty analog/mixed-signal chipmaker Microsemi (NASDAQ:MSCC) is up 8% since announcing yesterday morning (just before its analyst day) it's buying Ethernet chipmaker Vitesse (NASDAQ:VTSS) for $389M. Shares have made new highs along the way.
- Vitesse closed today $5.31, $0.03 above Microsemi's offer price. Ascendiant Capital's Cody Acree calls the offer "a bit low," and (given the deal is expected to be immediately accretive for Microsemi) thinks a rival bid might arrive. "Potential suitors could include Broadcom (NASDAQ:BRCM) or Marvell (NASDAQ:MRVL), who are already leaders in Ethernet and would see natural synergies in VTSS’s portfolio or Avago (NASDAQ:AVGO) who has also been particularly acquisitive."
- Meanwhile, Stifel's Tore Svanberg has hiked his Microsemi target by $5 to $40 in response to the Vitesse deal and Microsemi's analyst day presentations (slides - .pdf). "[M]anagement reiterated its strategy to maximize profitability, grow its market share in core products, while expanding its [addressable market] through new product initiatives and deeper penetration into their existing customer base."
- Svanberg adds the Vitesse deal "helps expand [Microsemi's] silicon/dollar content initiatives, especially in the comms infrastructure space and adds differentiated technology with high barriers to entry." He sees the purchase making Microsemi's goal of achieving a 60% gross margin and 30% op. margin in 2016 (compares with 56.2% and 24.4% in calendar Q4) easier to attain.