Microchip, ON Semi team for $2.3B Atmel acquisition bid

The two Arizona-based companies would sell Atmel's nonvolatile memory and RF and automotive businesses to ON Semi and, although not a condition of the offer, intend to dispose of Atmel’s ASIC business if the acquisition goes through.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 10/2/2008

Microchip Technology Inc and ON Semiconductor Corp have sent an unsolicited offer to Atmel Corp's board of directors proposing a joint acquisition of Atmel for $5 per share in cash. 

The proposal, which is being led by Microchip, provides a premium of 52.4% to Atmel’s Wednesday closing price of $3.28, and values Atmel at $2.3 billion.

In a letter dated October 1 to Atmel CEO Steven Laub and the company's board and signed by Microchip CEO Steve Sanghi and ON Semi CEO Keith Jackson, the two Arizona-based companies said the deal would be financed in part by the sale of Atmel’s nonvolatile memory and RF and automotive businesses to ON Semi. 

Although not a condition of the offer, Microchip and ON Semi in the letter further said that Microchip intends to dispose of Atmel’s ASIC business if the proposed acquisition were to go through. To that end, Microchip said it is "confident" that it could divest the business and noted that it has already engaged in discussions with a third party interested in acquiring the ASIC unit.

Microchip and ON Semi described the offer as "simply too compelling not to bring to your shareholders" in the letter to Atmel and outlined several obstacles to the San Jose-based company's growth. Like many companies that play in the semiconductor space, Atmel has been suffering from the changes in the dollar-Euro exchange rate, sagging ASPs (average selling prices), and the current global economic situation's impact on demand.

On that, the company in late July reported a net loss for the June quarter of $4.9 million, compared to net income of $6.8 million in Q1 and net income of $0.7 million for the year-ago quarter, and announced it would cut 210 jobs in France as part of a review potential changes in its business and asset portfolio throughout its worldwide operations.

"Atmel has reiterated frequently that the core tenant of its transformation plan is refocusing its resources on its microcontroller business; however, Atmel’s underperforming ASIC and auto businesses today remain very significant within the company’s overall business. These Atmel segments are significantly below the scale that is necessary for success and they will continue to be a heavy anchor on Atmel’s future operating results," Microchip and ON Semi said in the letter.

The duo credited Atmel's recent fab sales as helping it achieve modest improvements in operating results, but said the disposal of unneeded fabs is "only the first part of what has been, and will continue to be, a lengthy and difficult strategic shift for Atmel. 

"Even in a stable or growing economic environment, successful execution of the company’s announced plan is fraught with uncertainty. Against this background of significant execution risk, however, you confront a rapidly deteriorating US and global macroeconomic environment that will magnify these risks and increase the likelihood of failure," the letter said. 

Microchip and ON Semi claimed in the letter that even with the changes Atmel has announced, the company's stockholders have seen a 46% decline in share value in the last two years, while both their stocks have performed better than Atmel’s during the period. 

"It is clear that your businesses would thrive inside Microchip and ON Semiconductor.  Microchip is a leading provider of microcontrollers and analog semiconductors, having posted industry-leading financial results and superior shareholder returns.  … And ON Semiconductor is a leader in analog and mixed-signal technology and design, with a focus on driving shareholder returns through strong margins and superior cash flow," the letter concluded. 

Atmel's stock, AMTL, was up more than 25% on the proposed acquisition, trading at $4.11 as of 12:32pm eastern this afternoon.

Atmel in a statement today said it will review and consider the proposal in due course.

The joint proposal is the third unsolicited acquisition offer in the semiconductor industry in recent weeks. Microchip and ON Semi's interest in Atmel comes after Vishay bid on its power rival International Rectifier in August and Samsung bid on its memory competitor SanDisk in September.  Rumors are also swirling that Micron may soon bid for Qimonda, its struggling DRAM rival.