Chip maker Microsemi offers to buy PMC-Sierra in $2.4-billion deal

PMC-Sierra shares rose as much as 15 percent to US$11.73 on Monday, above Microsemi’s offer price of US$11.50.

Chipmaker Microsemi offered to buy PMC-Sierra for about $2.2 billion, trumping a $2 billion offer by Skyworks Solutions. Microsemi, which makes chip equipment and provides software for cloud data, said the deal would help it provide scalable storage services for data centre and cloud applications. The company has been trying to build up its communications business through a series of acquisitions at a time when an explosion of data from mobile devices has greatly boosted the need for efficient storage hubs.

Communications semiconductor vendor Microsemi Corp. The Skyworks offer valued PMC-Sierra at $10.50 a share in cash.

About 17.1 million shares of PMC-Sierra were traded by 9:55 a.m. Monday, above the company’s average trading volume of about 5.9 million shares a day. Microsemi said the total value of the deal was $2.4 billion.

“This is a much better fit for Microsemi than it is for Skyworks”, Stephens Inc analyst Harsh Kumar said. Given the market’s response, and more importantly, Skywork’s past conservatism around doing M&A that has a high degree of ROIC, we expect SWKS will look to other assets.

PMC and Skyworks did not respond to requests for comment.

“Based on extensive discussions with PMC over the past 18 months and comprehensive analysis, we believe this transaction offers compelling strategic and financial benefits for the shareholders of both Microsemi and PMC”, Microsemi CEO James J. Peterson said in a statement. Microsemi anticipates achieving more than $100 million in annual cost synergies with greater than $75 million of those to be realized in the first full quarter of combined operations.

The transaction with Microsemi will only be subject to domestic regulatory approvals (as opposed to approvals by foreign government entities including China, which is required under the Skyworks merger agreement and likely to result in additional uncertainty and delays) and customary closing conditions, as well as the approval of PMC’s shareholders. Microsemi advanced 2.3 percent to $37.36, giving the company a market value of $3.6 billion.