Sigma Designs sold for $282 million

Silicon Laboratories to acquire Sigma Designs for $7.05 per share

sigma design sold for $282M. Sockwinners.com
sigma design sold for $282M.

Shares of Sigma Designs (SIGM) jumped in morning trading after Silicon Laboratories (SLAB) agreed to acquire the company for about $282M.

The deal comes after Sigma reported weaker than expected quarterly results, and several months after an analyst speculated about a potential deal.

BACKGROUND

In a June 7 note, Benchmark analyst Gary #Mobley speculated that Sigma Designs could be a “prime acquisition target” for Silicon Labs or MaxLinear (MXL) if it shed assets to become a pure play IoT chip/cloud infrastructure.

Mobley said if Sigma was not acquired, but was able to raise $100M by selling non-core, non-IoT businesses, Sigma could make additional acquisitions to strengthen its IoT focus.

ACQUISITION ANNOUNCEMENT

After the market close on Thursday, Silicon Labs announced that it will buy Sigma Designs for $282M, or $7.05 per share in a cash transaction.

The deal, which is subject to certain closing conditions, is expected to close in the first calendar quarter of 2018. Key to the deal is Sigma’s Z-Wave IoT technology for smart home solutions, and Silicon Labs CEO Tyson Tuttle commented that

“By adding Z-Wave technology to Silicon Labs’ connectivity portfolio, we will be better positioned to serve this fast-growing market.”

Silicon Labs intends to work in collaboration with the Z-Wave Alliance to drive adoption and development of Z-Wave technology, it said.

In the event the closing conditions are not met, Sigma said it will sell its Z-Wave business to Silicon Labs for $240M.

In addition, Sigma said it plans to divest or wind down its Smart TV business, and is in active discussions with prospective buyers to divest its Media Connectivity business. Separately, Sigma Designs reported a third quarter loss per share of (25c) on revenue of $33.9M, missing analysts’ consensus estimates of (15c) and $38.55, respectively.

WHAT’S NOTABLE

In July, Sigma Designs said it had engaged Deutsche Bank as a financial advisor to explore strategic alternatives, including continuing with its restructuring plans, selling or spinning off certain products or the sale of the company.

In October, the company announced major restructuring activities to streamline the Connected Smart TV Platforms business and accelerate a return to profitability. As a result, Sigma said it planned to cut 200-250 jobs.

REACTION:

Weighing in on the acquisition announcement, Benchmark’s Mobley downgraded Sigma Designs this morning to Hold from Buy, telling investors that the 26% takeover premium from Silicon Labs is a good deal for shareholders. Sigma shares were also downgraded to Hold from Buy at Craig-Hallum and Lake Street.

Craig-Hallum’s Richard Shannon called the deal a “disappointing outcome,” as he thought the sum of the parts would be closer to $9 per share. He does not see a better price, as he thinks the deal was “well-shopped.”

Lake Street’s Jaeson Schmidt said he is “not surprised” by the news following Sigma’s exploration of strategic alternatives. He sees little risk to getting the deal done.

PRICE ACTION:

Sigma Designs is up nearly 23% in morning trading to $6.88, while Silicon Laboratories is up about 0.33% to $90.50.

OTHERS TO WATCH:

MaxLinear, a company that had been rumored to be a potential suitor for Sigma, is up 1.5% to $25.37 in Friday’s trading.


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Toshiba and Western Digital near a deal

Toshiba, Western Digital reach agreement in principle on chip unit

Western Digital and Toshiba reach an agreement. See Stockwinners.com
Western Digital and Toshiba reach an agreement.

Toshiba (TOSBF) and Western Digital (WDC) have reached an agreement in principle on the sale of Toshiba’s chip unit sale, Reuters reports, citing sources familiar with discussions.

The two sides intend to have a final deal in place next week.

Under the settlement, Western Digital will drop its arbitration claims that allowed it to block the sale of the chip unit to consortium led by Bain Capital. In exchange, Toshiba would grant Western Digital investment rights in a new advanced memory chip production line that will start next year.

The board of the embattled Japanese conglomerate approved a framework for a settlement on Wednesday, one of the sources said.

The potential for Western Digital – Toshiba’s partner in its main semiconductor plant and jilted suitor in the auction – to block a deal has been seen as the main obstacle to the planned sale of the unit to a Bain Capital-led consortium.

The settlement under discussion calls for Western Digital to drop arbitration claims seeking to stop the sale in exchange for Toshiba allowing it to invest in a new production line for advanced flash memory chips that is slated to start next year, two sources said.

Toshiba was forced to put the unit – the world’s no. 2 producer of NAND chips – on the block to cover billions of dollars in liabilities arising from its now bankrupt U.S. nuclear power unit Westinghouse.

The deal with the Bain-led consortium will, however, see it reinvest in the unit and together with Hoya Corp, a maker of parts for chip devices, Japanese firms will hold more than 50 percent of the business – an important wish of the Japanese government.

As part of the planned settlement, Toshiba and Western Digital would extend existing agreements for their chip joint ventures in Yokkaichi, central Japan, one of the sources said. The current agreements are set to start expiring from 2021.

Western Digital, one of world’s leading makers of hard disk drives, paid some $16 billion last year to acquire SanDisk, Toshiba’s chip joint venture partner since 2000.

With data storage key to most next-generation technologies from artificial intelligence and autonomous driving to the Internet of Things, NAND chips have only grown in importance and Western Digital has been desperate to keep the business out of the hands of rival chipmakers.

WDC closed at $78.35.


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