Atmel rejects Microchip buyout offer

Atmel has rejected a $2.3bn acquisition offer from rival chipmakers Microchip Technology and ON Semiconductor, saying the bid was “opportunistic” and significantly undervalued the company.

Chief Executive Steven Laub said in a conference call that the company is committed to its restructuring plan, and that it expects to create greater value for shareholders than the $5-per-share takeover offer, which was made earlier this month. At the time, the bid represented a premium of more than 50 per cent.

Microchip and ON Semi both said they had no immediate comment on Atmel's rejection. Under the proposed transaction, Microchip would buy Atmel and then sell some assets to ON Semi. Microchip would have also tried to sell Atmel's ASIC chips business.

“We have great confidence in our ability to continue delivering on our commitments to ensure that Atmel shareholders realise Atmel's full potential,” Laub said. “Microchip and ON's proposal was opportunistically timed to capture this value for themselves.”

Laub said Atmel's restructuring has led to the divestiture of 14 product lines, and has reduced the company's workforce by 18 per cent. The company is on track to achieve more than $125m in cost savings in 2008, he said, and will continue to sell or shutter remaining businesses that do not meet its objectives.

Atmel plans to transform itself into a company focused on microcontrollers, which are chips used to control functions in products such as televisions. Microchip was interested in acquiring only Atmel's microcontroller business.

The company also reported a net loss in the three months ended September 30 of $4.7m, or a penny a share, compared with a year-ago profit of $16.6m, or 3 cents a share.

After excluding one-time charges, Atmel posted a profit that beat analysts' expectations, according to Reuters Estimates, but it was not immediately clear by how much because of some special items recorded. Revenue in the period fell to $400m, compared with the $400.8m analyst estimate, according to Reuters Estimates.

Echoing the forecasts of other chipmakers, Laub said Atmel is seeing soft demand, and he expects a challenging fourth quarter.

Separately, sources told Reuters ON Semi is talking to private equity firms about selling a stake to raise cash in order to finance its part of the deal.

TPG is one of the private equity firms ON Semi is talking to about getting an equity investment in return for a stake in the company, the sources told Reuters.

Earlier this month, Microchip Technology Inc and ON Semi jointly made an unsolicited offer to buy rival chipmaker Atmel for $2.3bn. Atmel rejected the bid on Wednesday. The proposed transaction would involve Microchip buying Atmel for $5 a share and then selling Atmel’s nonvolatile memory, radio frequency and automotive businesses to ON Semi.

ON Semi Chief Executive Keith Jackson has said the company could pay up to $1bn for those assets, using more than $410m of its own cash, $260m under existing credit facility and the rest in additional financing. However, the financial markets meltdown has made it nearly impossible to sell debt on attractive terms. Analysts have said this deal may not go through given the financing risk.

In its statement, Atmel raised the concern that ON Semi may not be able to raise the cash given the credit environment and the lack of a financing commitment. But one of the sources said the chipmaker reached out to TPG given their long-standing relationship, rather than out of concern about debt financing.

ON Semi was spun out of Motorola and bought by TPG in 1999; it went public a year later with TPG owning a majority of the company. Last year, the private equity firm sold all its remaining shares of ON Semi.
TPG and ON Semi officials were not immediately available for comment.

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