Semiconductors & Testing News: Top Story
Genesis Microchip Gets Sage in $241m Deal
Sept 29 (The Deal.com) - Shares of digital display chipmaker Sage Inc. surged as much as
33% Sept. 28 on news that larger rival Genesis Microchip Inc. would acquire it for $241
million in stock.
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The agreement, which represents the first major deal in the semiconductor market in months, calls for Genesis
to exchange 0.571 of a share for each outstanding Sage share. The fixed exchange ratio values Sage at $15.58
per share, a 37% premium, based on Thursday's closing prices. Sage share and option holders will own about
28% of the combined company on a fully diluted basis after the deal's expected close early next year.
Included in the agreement is a $10 million termination fee payable by Sage should the company back out of the
deal. The agreement does not contain a collar.
For financial advice, Thornhill, Ontario-based Genesis hired Dresdner Kleinwort Wasserstein (Several officers
of Dresdner Kleinwort Wasserstein are general partners in the fund that owns The Deal llc). The DrKW team
was composed of managing director and head of global technology James Student, director David Bain,
associate Tony Kim and analyst Sergei Linnik.
Genesis' outside legal counsel came from Jeffrey Saper and Selim Day of Wilson Sonsini Goodrich & Rosati
of Palo Alto, Calif.
Milpitas, Calif.-based Sage hired U.S. Bancorp Piper Jaffray managing director Jason Hutchinson for financial
advice and turned to Morrison & Foerster's John Campbell, Russell J. Wood, Kathryn Fulton and Kevin
DeBorde for legal counsel.
Semiconductor industry deals have all but dried up in the past months. Investment bankers with chip company
clients have said they are just as busy as before the economic downturn, but deals are taking far longer to
conclude.
The Genesis-Sage deal is unusual in that it took only weeks to negotiate, according to Genesis management,
while most deals are taking months in the current market environment. Observers said the familiarity between
the two major competitors helped expedite the agreement.
"Generally, taking the final step in an M&A deal is taking a lot longer these days, but these two companies are
in the same space," said Mark Grossman, an analyst with SG Cowen Securities Inc. "I'm sure they have
considered a deal like this on and off for the past couple of years."
Analysts expressed concern Friday that the combined company's leading market share position in the
flat-panel display chip market could arouse the attention of antitrust regulators. Genesis commands roughly
50% of this market, while Sage has a roughly 15% market share, analysts timated.
But during a conference call Friday, Genesis chief executive Amnon Fisher said he does not expect antitrust
regulators to consider the flat-panel market as the combined company's sole realm.
Rather, the government should look at the entire display market, which includes television screens and home
theater projectors, in calculating the companies' combined market share, Fisher said. In that case, the enlarged
Genesis would appear as a "tiny dot" with respect to larger competitors, Fisher said.
"Picking the definition of the market will be key as to some potential antitrust concerns," said Scott Randall, an
analyst with Soundview Technology Corp.
Overall, analysts praised the deal, saying it would unite two companies with complementary strengths. Genesis
has built a strong position in semiconductors used in analog monitors and monitors that use a combination of
digital and analog technologies.
Sage's specialty lies in the pure digital display chip market. Tokyo-based electronics manufacturer NEC
Corp., for example, buys its digital video interface chips from Sage and its analog chips from
Genesis,according to Dan Scovel, an analyst with Needham & Co. in New York. "The combination makes a
lot of sense from the customer perspective," he said.
Additionally, while Sage has a large team of 200 engineers, its sales force was too small to compete effectively
with Genesis. "Sage has very good, technical engineers, but Genesis is on its second generation of management
-- it is much farther down the sales and business infrastructure path than Sage," Scovel said.
Sage CEO Chandra Reddy said the deal will bulk up his company in time to do battle with bigger players,such
as chip giant Intel Corp., which he predicted might want to enter the rapidly growing display chip market.
"As the display industry continues its rapid growth, we expect it will become of increasing interest to larger
companies," Reddy said in the conference call.
Advisers on the deal said the only major wrinkle in the transaction was an agreement that requires Genesis to
move its headquarters from Toronto to the United States. If the buyer had remained in Canada when the deal
closes, the tie-up would not have been tax-free for Sage shareholders, deal insiders said.
The new company will be based in Genesis' Alviso, Calif., facilities, near Sage's headquarters in Milpitas.
Excluding one-time charges from the transaction, the acquisition is expected to add to Genesis' earnings per
share in the first full quarter of combined operations. Executives Friday declined to disclose the expected
accretion. Some of it will come from cost savings arising from combining purchasing, auditing, manufacturing,
sales and administrative operations, Fisher said.
Genesis shares climbed less than 1%, to $27.52, in afternoon trading Friday after a small dip earlier in the day.
Sage shares were up 29%, to $14.60, in afternoon trading. |
