Tower Semi strengthens analog-intensive mixed signal foundry service with Jazz acquisition

Creating what the companies believe is the leading specialty pure-play foundry with trailing 12 month revenues of $443 million, the two foundries are coming together to offer specialty processes including CMOS image sensors (visible and non-visible), radio frequency (RF CMOS, SiGe and BiCMOS) and power management (CMOS and BCD).

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 5/20/2008

Migdal Haemek, Israel-based specialty wafer foundry Tower Semiconductor Ltd reported Monday afternoon that it would acquire all of the outstanding shares of Jazz Technologies Inc, a Newport Beach, Calif.-based analog-intensive mixed signal foundry in a stock-for-stock transaction valuing Jazz at a fully diluted equity value of approximately $40 million, based on Tower’s closing price of $1.16 on NASDAQ on May 19.

Under the terms of the agreement, each outstanding share of Jazz common stock will be converted into the right to receive 1.8 Tower ordinary shares, with the total value of the transaction, including net debt, of approximately $169 million.

With operational facilities now spanning the globe with three fully owned fabrication facilities in the US and Israel, along with an ownership interest in a fab in China, Tower believes this is a significant opportunity to boost its revenue and realize as much as $40 million in annual cost savings through synergies of the combined businesses.

“The acquisition of Jazz is an excellent strategic fit for Tower – it creates economies of scale which allows for improved margins and strongly complements our specialty process offering, transforming us into the leading specialty pure-play foundry,” commented Russell Ellwanger, CEO of Tower, in a statement.

“We are confident that we will realize significant benefits and synergies, including a comprehensive process portfolio which expands our addressable market and fuels a growing and more diversified customer base with highly differentiated product platforms,” he continued.

Jazz chairman and CEO Gil Amelio noted that over the past few months its board carried out a review of various strategic alternatives to enhance stockholder value and this definitive agreement is the result of that process.

The companies hope the combined company will be an industry leader, that brings together Tower’s experience in CMOS image sensor, non-volatile memory (NVM) and RF CMOS with Jazz’s work in mixed signal, power management (CMOS and BCD) and RF (RF CMOS, SiGe and BiCMOS) to create what they believe is one of the broadest portfolios of specialty process technologies.

Operational facilities are located in the US, Israel and China, with total capacity of approximately 750,000 wafer starts annually (8-inch equivalents).

Revenue enhancements and increased efficiencies in manufacturing and purchasing are expected to result in substantial synergies of up to $40 million annually, Tower said.

The agreement has been unanimously approved by the boards of directors of both companies and is subject to the approval of Jazz’s shareholders and other customary closing conditions. The transaction is expected to close in the second half of 2008.

Over the past several years, Tower has made strident efforts to reduce its losses, and in February announced 
that it achieved annual positive cash flow in 2007 from operations for the first time since its Fab2 was established and recorded positive cash flow from operations for the 5th consecutive quarter in Q4 2007 and positive EBITDA for the 9th consecutive quarter.

Its Q4 results were an improvement from Q3, when the company announced last December that following the $33 million Q3 net loss reported in November, and in order to improve gross, operating and net margins in its fiscal year 2008, Tower initiated a cost-reduction plan that included layoffs, materials sourcing, reduced capital expenditures and acquisition of used semiconductor manufacturing equipment.