Now Hear This!

Vishay is proving its persistence in pursuing International Rectifier, but will that persistence pay off? Analysts say no.

After IR rejected two bids from its power rival, the largest of which was valued at $1.7 billion or $23 a share,  Vishay this week went around IR's board and straight to its stockholders, offering them $23 a share in an attempt to gain control of the company. IR stock, IRF, closed at $19.02 today.

IR reacted by sending a letter to shareholders, dripping with words like "inadequate," "disruptive," and "destabilizing," and a heading starting with "BEWARE" followed by not one, not two, but three exclamation points.

Attempted takeovers are never neat and tidy, so the mess that's built up here isn't unusually. Sometimes the mess pays off. Insert your favorite "break some eggs to make an omelet" or  like expression here. But sometimes all you end up with is egg on your face, wasted resources, and a failed acquisition attempt. Take Cadence's withdrawn bid for EDA rival Mentor Graphics, for example.  And financial analysts are beginning to suggest this attempt by Vishay may be a futile one.

"After reviewing investor presentations and proxy solicitations from IR and Vishay, we believe there is little chance that IR will be sold to Vishay because Vishay's $23 offer price is too low, in our view," FBR Analyst Craig Berger said in a research note this morning. "Both management teams have very disparate opinions about IR's fair value, with IR focusing on its potential turnaround prospects in coming years and Vishay focusing on the past two years of poor performance."

According to Berger, "Vishay seems reluctant to raise its bid high enough to close the deal. We believe Vishay is hoping that a presence on the board and mis-execution on the part of IR's management could result in shareholders having second thoughts down the road."

Complementing that, Stephens Inc Managing Director Todd Cooper in a separate research note said, "International Rectifier plans to make aggressive changes to its operations and strategic focus in order to turn the company around and attempt to regain a leadership position in the power semiconductor industry."

Cooper said he feels more confident in IR's future after attending its recent analyst day, during which IR's technology efforts including its plans for developing GaN as the "next major breakthrough" in power semiconductor material technology were discussed.

"We came away from the meeting feeling better about IR's retention of engineering talent, which we view as being extremely critical," Cooper said. "We think investors will need to see tangible proof of improvement before gaining confidence in the company and the new management team.

"All of our conversations with large shareholders have indicated that Vishay has a virtually nonexistent chance of being successful with the bid in its current form," Cooper said. "The shareholders we spoke with believe that the $23 offer price undervalues IR's business. Peer multiples for companies such as ON Semiconductor and Intersil … suggest that the company's common stock could see a price in the mid-$30s if successful in its turnaround strategy. Additionally, IR has a poison pill in place designed to thwart a hostile acquirer by diluting its ownership position."

However, Cooper does not rule out the possibility of additional interest from other strategic buyers.

What are your thoughts on Vishay's bids? Would a combined IR-Vishay's strength benefit power technology development and the market? Should IR's stockholders take the money and run? Voice your opinion below.

--Suzanne Deffree, Managing Editor, News