Atmel rejects Microchip, ON Semi acquisition bid

The offer, led by Microchip and made in early October, valued Atmel at approximately $2.3 billion.

By Suzanne Deffree, Managing Editor -- Electronic News, 10/31/2008

Atmel Corp has rejected an unsolicited bid from Microchip Technology Inc and ON Semiconductor Corp proposing a joint acquisition of the company for $5 per share in cash. 

The offer, led by Microchip and made in early October, valued Atmel at approximately $2.3 billion.

"Atmel's board has determined that Microchip and ON's highly conditional proposal significantly undervalues Atmel and would deprive Atmel stockholders of the greater value that can be achieved through the continued execution of the company's transformation plan," said David Sugishita, chairman of San Jose-based Atmel, in a statement this week.

In making their original proposal, 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 had further intended to dispose of Atmel's ASIC business if the proposed acquisition had gone through. To that end, Microchip said in the offer that it was "confident" it could divest the business and noted that it has already engaged in discussions with a third party interested in acquiring the ASIC unit.

Atmel this week described the offer as one that is "inadequate in multiple respects, including value, conditionality and complexity" and one that "is not in the best interests of Atmel's stockholders."

In a letter sent Wednesday to Steven Sanghi, chairman, president, and CEO of Microchip, and to Keith Jackson, president and CEO of ON Semi, Atmel President and CEO Steven Laub said: "Atmel's board takes its fiduciary duties seriously. Given the risks, uncertainties, and competitive issues of your approach, we believe the interests of Atmel's stockholders, employees and customers will be better served by continuing to pursue our transformation plan that we expect will generate substantially greater stockholder value."

Laub noted that Atmel's noncore manufacturing facilities have been shut down and sold, reducing the company's fabs from five to two by the end of 2008. He further pointed out that Atmel has divested or shut down 14 noncore product lines, while consolidating or streamlining others. The company has also implemented an 18% workforce reduction and expects to realize more than $125 million of cost savings in 2008, Laub reminded. The CEO also said in the statement that Atmel will continue selling or shutting down those businesses that do not meet the company's financial or strategic objectives as necessary to create shareholder value.

Laub continued to point out Atmel's strengths in the letter, reporting that the company's microcontroller growth rate was 21% for the September quarter year-over-year and claiming that it "substantially" exceeded that of Microchip's at 5.5%. He further questioned ON Semi's ability to find funding for its proposed acquisition of Atmel's nonvolatile memory and RF and automotive businesses. Atmel had made that same point when the proposal was first made on October 1.

"Your unsolicited proposal is highly opportunistic and delivers neither fair nor full value to Atmel's stockholders," Laub wrote in the letter. "Given our progress and the actions Atmel's board and management are continuing to take, we are confident that Atmel stockholders will realize greater value through the continued execution of the company's strategic plan."

This may not be the end of Microchip and ON Semi's interest in the MCU maker, however. In their own statement this week, Microchip and ON Semi said they are "disappointed" with the rejection and that they will consult with their respective boards and advisors to determine their next steps in due course.

The joint proposal is one in a series of unsolicited acquisition offers 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. Vishay earlier this month pulled its offer, as did Samsung. But like the Atmel offer, Samsung's attempts to buy SanDisk may not be fully concluded. An analyst has suggested Samsung may return with a lower bid as SanDisk's stock price continues to sink and on the flash maker's falling financials.

Atmel's stock, ATML, was down in this morning's trading, falling to $3.95 by 11:04am eastern from its Thursday close of $4. The stock, like many stocks in the tech sector, has taken a beating in recent weeks as the Dow continued to climb and crash on the current economic turmoil. ATML hit a $4.06 high point for the week on Thursday afternoon, recovering from its Monday low of $3.40. The stock's 52-week range is $2.50 to $4.91.