VLSI and Philips to Tie the Knot

Jeff Dorsch -- Electronic News, 5/10/1999

San Jose — What's next for VLSI Technology Inc.?

Now that Royal Philips Electronics NV finally got what it wanted, after agreeing to spend more than $1 billion to acquire the custom chipmaker, the emphasis will be on how VLSI Technology will fit into Philips Semiconductors.

Some observers see parallels to Philips' long-ago acquisition of Signetics Corp., an old-line Silicon Valley chipmaker. Signetics continued on its own, under its own name, for some years before being subsumed into Philips Semiconductors. But Signetics' less-than-stellar performance during that period could persuade Philips to take a different tack this time.

"VLSI and Philips Semiconductors have complementary operations with almost no product overlap," the companies stated last week. "Combining VLSI's digital expertise and capabilities in wireless communications, computer networking and ASICs with Philips' strengths in wireless, multimedia, automotive and consumer electronics will benefit the customers of both companies and create numerous growth opportunities."

It appears this may be the final act for Al Stein in his 17-year career at VLSI Technology. Philips has indicated that Stein plans to retire once the merger transition is completed. The 66-year-old VLSI chairman and chief executive officer is expected to walk away with millions following the acquisition; as of March 16, he held 1,438,430 common shares of VLSI stock, worth $30.2 million at Philips' new tender offer price of $21 a share, and VLSI lent him $6.2 million in February to acquire options for more shares.

In a memo distributed last week to VLSI employees, Stein said, "I have been privileged to know and work with you. I would like to wish you all well, and hope that we will continue to cross paths in the weeks, months and years to come."

Stein is expected to move on to a post-VLSI career in directorships and consulting. He currently serves on the boards of Applied Materials Inc. and Tandy Corp.

Philips had first approached VLSI about a merger or another combination last September, but kept the dialogue under wraps for months before going public with its intent to acquire VLSI in late February. A hostile tender offer was initiated on March 5, bidding $17 a share in cash. VLSI's board of directors formally rejected the offer later that month, while opening the door to talks with Philips and other parties.

In April, Philips and VLSI reached a confidentiality and standstill agreement that allowed Philips to look at non-public information about VLSI, and to meet with its executives. Those events led to the May 2 definitive merger agreement between the companies, under which Philips will pay $21 a share in cash for all outstanding shares of VLSI.

VLSI has 46.6 million shares outstanding, including 1.2 million already owned by Philips. Philips said it will cash out options on an additional 11.3 million shares of VLSI common stock, putting the purchase price at around $1.2 billion. Philips amended and extended its tender offer to Friday, May 14.

At the opening of a Philips Semiconductors' $300 million test and assembly plant in the Philippines last week, Philips Semiconductors Chairman Arthur van der Poel told Bloomberg News, "What we saw in the books gave us confidence, and more specifically was the fact that the first-quarter result of VLSI was better than anticipated, but more importantly they had received good orders from a number of key customers which means that the future business is quite solid. The combination of those factors led us to that price. We wanted to conclude this process quickly and we believe that with the $21 offer, it would be so compelling that we could close the deal quickly."

Just before concluding its merger agreement with Philips, VLSI reported receiving a $19 million order from Mitsubishi Electric Corp., which will use VLSI's OneCT single-chip GSM broadband offering in its Trium GSM mobile phones.