Conexant Spins Off Mindspeed
Conexant Systems Inc. today announced that its board has approved a plan to separate its Mindspeed Technologies Internet infrastructure business in a tax-free spin-off to shareowners. The spin-off, which is expected to be completed during the summer, will create two independent, publicly traded communications semiconductor companies to close Conexant's focused business creation strategy, leaving the company's sole broadband segment.
"This decision represents the final step in Conexant's transformation from a broad-based communications supplier into a family of focused, pure-play semiconductor businesses," said Dwight W. Decker, Conexant's chairman and CEO, in a statement. "Internally, Conexant's broadband communications business and Mindspeed have been operating separately, and as a result of last quarter's $215 million early debt repayment from Skyworks Solutions, we have the flexibility and the capital required to provide solid financial foundations for both of these independent companies."
Conexant's broadband communications business returned to operating profitability last quarter and despite a seasonally down quarter Matt Rhodes, president of the segment, said he expects it to remain profitable in the current quarter and for the business to grow each quarter for the rest of the year through market share gains.
Today's move follows Conexant's 2002 Skyworks wireless-focused spin-off through a partnership with Alpha Industries in June; its creation of RF and mixed signal foundry Jazz Semiconductor with The Carlyle Group in March; and the move to combine its digital imaging business with Zing Network to form Pictos Technologies in July.
"We are enthusiastic about this last step in our transformation into an independent public company," said Raouf Halim, Mindspeed's CEO, in a statement. "With the worst of the Internet infrastructure market downturn behind us, we will separate with strong design-win momentum across all our core product lines, excellent relationships with tier-one networking equipment customers worldwide, and a clear focus on the access and metropolitan area network markets where we see the greatest growth opportunities."
But the break will not be a clean one. At the time of spin-off, Conexant shareowners will receive a dividend comprised of all of the outstanding shares of Mindspeed on a pro rata basis, the company said. Mindspeed will receive an initial capital funding of $100 million in cash from Conexant, it said, plus an additional $50 million cash in contingent financing. In addition, Conexant will receive warrants for up to 20 percent fully diluted equity ownership of Mindspeed.
"Although Mindspeed is not yet profitable, the $150 million flexible financing structure provided by Conexant will yield a solidly capitalized new company," Halim said. "In addition, we are taking steps to reduce our operating cost structure by a further 25 percent. Coupled with the restructuring activities we have completed over the
past six months, these actions are expected to lower Mindspeed's operating break-even level from $55 million in revenue per quarter to approximately $45 million per quarter, including the addition of incremental public company operating expenses.
"Industry conditions remain challenging, but we are convinced that our design-win momentum over the past year and new products now ramping into production will drive significant Mindspeed market share gains going forward," Halim continued. "We are encouraged by Mindspeed's improving order rate in the current quarter, which is
stronger than it was both last quarter and a year ago. Considering our cost-reduction actions and our revenue growth expectations, we anticipate that Mindspeed will achieve the critical operating profitability milestone before the end of calendar 2004."
Completion of the Mindspeed spin-off is subject to, among other things, customary regulatory approvals and the receipt of an opinion of counsel as to the tax-free status of the transaction.