MACOM to acquire Mindspeed for $272M

Communications semiconductor supplier Mindspeed Technologies (NASDAQ:MSPD) says it has entered into a definitive agreement to be acquired by M/A-COM Technology Solutions Holdings, Inc. (MACOM; NASDAQ:MTSI), which sells high-performance RF, microwave, and millimeter-wave products, including devices for optical communications applications (see, for example, “M/A-COM Technology Solutions Announces Industry’s Lowest Power EML Driver”).

The cash tender offer is for $5.05 per share, which adds up to a transaction value of approximately $272 million in diluted equity value, or $246 million net of Mindspeed's cash position of approximately $26 million as of September 27, 2013. This figure represents a premium of approximately 66% to Mindspeed’s closing share price of $3.04 on November 4, 2013.

The deal does not include Mindspeed’s wireless business, which the company is attempting to sell separately before the deal with MACOM closes. Mindspeed is currently “in advanced discussions with a potential strategic buyer,” according to a MACOM press statement. Should that deal fall through, the wireless business will be restructured and wound down. Wireless customers will continue to be supported in this instance, MACOM asserted.

In addition, MACOM has determined that Mindspeed’s communications processor business doesn’t fit well with its future plans. The company therefore will explore “additional options” once the acquisition closes, a milestone MACOM expects to reach by the end of this year.

“This acquisition will position MACOM as a leading global provider of 100G optical solutions which underscores our growth strategy in commercial communications markets,” said John Croteau, MACOM’s president and CEO. “Our interest in Mindspeed is the company’s high-growth, high-margin HPA [high performance analog] business as well as its cash-generating VoIP business. The addition of the HPA portfolio, which consists of the world’s fastest crosspoint switches, ultra low power signal conditioners, and industry-leading optical PMDs, aligns well with MACOM’s business model -- offering non-GAAP gross margins approaching 70%, long product life cycles, and sticky customer relationships.”

The new assets also would expand MACOM’s footprint into the enterprise and metro markets, extend its market reach into Asia-Pacific, and add silicon germanium capabilities to its materials arsenal.

MACOM says the companies’ combined trailing 12 months revenue is approximately $451 million, with non-GAAP gross margin of approximately 50%, excluding Mindspeed’s wireless business. The company expects the new assets to be immediately accretive to MACOM’s non-GAAP earnings per share by between $0.15 and $0.20 per share in fiscal 2014 and between $0.25 and $0.30 per share in fiscal 2015.

Naturally, Mindspeed’s executive team expressed its pleasure with the pending transaction. "After a thorough review of a wide range of alternatives by Mindspeed's board and management team, and spearheaded by Morgan Stanley, we are thrilled to be joining forces with MACOM," said Raouf Y. Halim, Mindspeed's CEO. "The company shares our commitment to innovation, and the two companies complement each other well, particularly within the high-performance analog market segment. Together we will have the scale and resources to deliver innovative technologies to our customers and drive growth, with a larger portfolio of products and a global sales force."

MACOM intends to commence a tender offer to purchase each outstanding common shares of Mindspeed for $5.05 in cash, without interest, and MACOM will assume certain equity awards held by Mindspeed employees.

The boards of both companies have approved the transaction, which is subject to customary closing conditions and regulatory approvals.

Further details of the transaction are set out in Mindspeed's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 5, 2013.

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