Headline: Philips Reaches Accord To Buy VLSI Technology For $1.04 Billion
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By Matthew Rcap, Staff Reporter of The Wall Street Journal
Royal Philips Electronics NV, after months of negotiations, reached
an agreement to acquire VLSI Technology Inc. for $1.04 billion plus the
assumption of $160 million in debt, a move that takes the Dutch company
into new, fast-growing markets.
The all-cash deal, which has the approval of VLSI's board, values the
San Jose, Calif., chip maker at $21 a share. That is an 11% premium to
VLSI's closing price Friday on the Nasdaq Stock Market of $18.875 and a
23.5% increase from the Dutch electronics conglomerate's initial
$17-a-share unsolicited offer made in February.
As a result of the agreement, Philips will adjust its initial tender
offer and extend the deadline for acceptances until May 14. The hostile
measures taken by Philips to push its initial offer through, such as a
legal procedure that would remove the VLSI board, will be dismantled, a
company spokesman said.
For Philips, the purchase of VLSI, which will become a fully owned
part of Philips's semiconductor unit, is crucial to its expansion into
fast-growing markets such as mobile communications. VLSI has strong
products that focus on the mobile-phone-handset market.
Executives of Eindhoven-based Philips, which has been trying to move
away from the slow-growing market of providing chips for consumer
electronics, have said in the past that VLSI will also be the bedrock of
the company's expansion plans in the U.S. Around 20% of the $4.5 billion
in sales of Philips's chip unit in 1998 came from there.
The end of VLSI as an independent entity comes at a difficult period
for the company, battered by competition from Intel Corp. and management
turmoil. A Philips spokesman declined to comment on the future of the
VLSI's management.
Many high-tech mergers result in large work-force reductions. But
Arthur van der Poel, chairman of Philips's semiconductor unit, said that
"layoffs will be very limited, certainly less than 10%" of VLSI's 2,200
employees.
Philips was prompted into raising its offer after a series of other
companies expressed interest in acquiring VLSI, and after it had looked
more closely at the company's books, according to people familiar with
the matter. Philips made its hostile bid Feb. 26 and the two companies
have been negotiating since.
Analysts may be surprised at the rise in price. The Dutch company has
underperformed expectations recently, and although the semiconductor
unit is one of its better-performing operations, the parent has been
faulted by investors for a series of botched reorganizations including
the collapse of its mobile-phone venture with Lucent Technologies Inc.
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