[OT] Philips Electronics Offers to Buy VLSI for $777 Mln
Amsterdam, Feb. 26 (Bloomberg) -- Royal Philips Electronics NV, Europe's
No. 1 semiconductor maker, offered to buy U.S. chipmaker VLSI
Technology Inc. for $777 million, hoping to gain a broader range of
chips for its electronic consumer products.
Philips said it offered $17 in cash per VLSI share, a 58 percent premium
over yesterday's closing price. VLSI officials said they would review
the offer and declined to comment further. The company's shares rose
4 5/16 to 15 1/16 in midday trading.
VLSI, based in San Jose, California, would give Philips access to a
range of technologies to improve its mobile phones, portable computers
and new digital electronics products. Amsterdam-based Philips could
use VLSI's chips to jump-start its unprofitable mobile-phone business
after its failed PCC joint venture with Lucent Technologies Inc.,
analysts said. ''It's quite good timing and quite a good buy,'' said
Nils Meyles, an analyst at Friesland Bank Securities who rates Philips
a ''market performer.'' ''It may help them refocus and make the PCC
group profitable again.''
VLSI's biggest attraction is its strength in chips with code-division
multiple access, or CDMA, technology, a standard for U.S. mobile
phones, Meyles said. That would help Philips secure U.S. market share
that's essential for its survival as a phone maker. It needs to grab
more of the $44 billion world market for mobile phones now dominated
by Nokia Oyj, Motorola Inc. and Ericsson AB.
Philips's offer was spelled out in a letter to VLSI following meetings
between the two companies. Philips is asking for a response by
Wednesday, and declined to comment on what it would do if VLSI rejects
the offer.
VLSI Chairman and Chief Executive Al Stein said the company had received
the offer letter from Philips, though he declined to say when VLSI's
directors will meet or whether he expects the board to accept it.
''We've looked at it,'' Stein said. ''We'll review it with our board
of directors and respond appropriately.''
Chips for Communications
Ericsson was VLSI's top customer in 1997, bringing in 29 percent of
revenue, and Philips's former partner Lucent was another. Once a
pioneer in developing high-margin specialized chips for computers,
VLSI now focuses on communications chips, and makes custom chips used
in televisions and set-top boxes -- a complement to Philips' expansion
in multimedia electronics products for consumers.
The purchase also may be a move to beef up the semiconductor division
prior to selling it off, analysts said. Germany's Siemens AG, the
world's No. 10 chipmaker, plans to sell shares in its semiconductor
unit early next year after it revamps the business to make it
profitable again.
The bid for VLSI is well-timed to help Philips take advantage of a
rebound in the chip industry that's expected in the second half of
this year, analysts said. Philips' chip unit head Arthur van der Poel
said last month that he expects the world market for chips to grow
between five and 10 percent this year.
Philips squeezed out 2 percent growth in 1998 sales to 7.1 billion
guilders, beating out other chipmakers that saw sales fall. Philips
benefits from its absence in the market for memory chips, where prices
fell as much as 60 percent last year.
Chip Ranking
Philips climbed one notch in 1998 to rank eighth among the world's
chipmakers, according to market researcher Dataquest. Adding about
$550 million in sales, the purchase of VLSI may not be enough to
leapfrog No. 7 Hitachi Ltd. of Japan, though it may be a sign Philips
will buy again in chips, analysts said. ''Semiconductors are the most
obvious acquisition area, especially chips for multimedia applications,''
said Bert Siebrand, an analyst at SNS Securities, who rates Philips a
''hold.''
Philips is loaded with cash from the sale of music company PolyGram NV
to Seagram Co. of Canada. The VLSI purchase still leaves it with more
than $5 billion to spend on a second share buyback and more acquisitions.
Philips also is eager to trim its dependence on the European market,
where economic growth is expected to slow this year. It boosted its
U.S. marketing budget for 1999 by 30 percent over 1998 as it pushes
the Philips brand name. ''We plan to use VLSI as a cornerstone of our
growth strategy for Philips Semiconductors in North America and as a
platform for further expansion,'' Chief Executive Cor Boonstra said in
his letter to VLSI's Stein.
Philips expects double-digit growth in 1999 earnings this year. The bulk
of the increase will come in the second half, as Philips said first-half
profit will likely decline from the same period in 1997.
Philips' last move to strengthen its chip division was its $1.2 billion
investment in a new plant in Singapore with two partners. That plant
will start making tiny ''logic'' chips, used in televisions and mobile
phones, next year.
The company indicated on Feb. 11 that fourth-quarter profit from operations
fell 19 percent to 889 million guilders ($445 million), hurt by
economic slowdown in Asia and Brazil as well as slower sales of its
products in the U.S.
At VLSI, profit from operations fell 33 percent to $14.8 million, or
32 cents a share, in the fourth quarter. The company plans to reduce
its workforce by 10 percent by 2000 through cutbacks and attrition.
Philips shares fell 0.25 euro to 63.50 in Amsterdam. The company's
U.S.-traded shares fell 5/16 to 69 13/16
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