3 Reasons Why Spansion's CEO Likes The Saifun Acquisition

Includes: SFUN, SPSN
by: Eric Savitz

Flash-memory maker Spansion (SPSN) Monday morning announced a deal to acquire Israel-based Saifun Semiconductor (NYSE:SFUN), an IP licensing company which provides key technology for parts that make up the majority of Spansion’s revenues.

The terms of the deal are a little complicated; in an interview with Tech Trader Daily Monday morning, Spansion CEO Betrand Cambou complained that some people aren’t quite getting it. Saifun holders will each get 0.7429 shares of Spansion, plus $5.05 a share in cash. Cambou notes that the cash will come from existing cash on hand at Saifun.

Total consideration is $11.26 for each Saifun share. That’s $368 million in compensation to Saifun holders, but Cambou notes that the real cost to the company is $210 million, since the $158 million in cash being paid to holders is coming from Saifun’s own balance sheet, and not from Spansion. He notes further that the bottom line cost is even lower, since Spansion will receive the $75 million Saifun still has on its balance sheet; in other words, the real cost is more like $135 million.

Cambou says there are three primary reasons to do the deal. One, Spansion pays Saifun licensing fees for its MirrorBit technology, which is used in about 70% of Spansion’s components; he notes that the company is on a $2 billion run rate for its MirrorBit parts. With the deal, the licensing fees go away.

Two, he says the company will fold its existing patent portfolio in with Saifun’s own patents, and begin pursuing a licensing strategy with its existing 3,000 patents. In short, he says they plan to apply Saifun’s expertise in patent licensing to a larger group of patents. And third, he says the company will grow its engineering staff by about 50% as a result of the the deal, allowing the company to “beef up new product generation.”

The company expects to close the deal in January 2008. Saifun CEO Boaz Eitan will continue in his current post; he’ll also get a Spansion board seat.

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