Semtech agrees to acquire Sierra Monolithics

NOVEMBER 19, 2009 – Semtech Corp., which supplies analog and mixed-signal semiconductors for high-end consumer, computing, communications, and industrial equipment, says it has agreed to acquire Sierra Monolithics Inc. for $180 million in cash.

Headquartered in Irvine, CA, with design centers in Irvine and Redondo Beach, CA, Sierra Monolithics has been particularly successful in supplying SERDES for 40-Gbps optical applications and has client- and line-side 100-Gbps devices under development. The company also supplies devices for wireless applications. Over the last five years, SMI has grown revenue at a compound annual growth rate of over 40%.

Sierra Monolithics expects to generate approximately $50 million of revenue for calendar year 2009 with gross margins towards the high end of Semtech's stated gross margin model of 55% to 60%.

Semtech expects the transaction to be accretive to the company's GAAP earnings per share within 12 months of the transaction’s close. It will be immediately accretive to Semtech's Non-GAAP gross margins and Non-GAAP earnings per share, the company believes.

"We are extremely excited to have Sierra Monolithics become a part of Semtech," said Mohan Maheswaran, president and CEO of Semtech. "Sierra Monolithics has the benefit of over 20 years of innovation, design, and commercialization of high-performance analog ICs and solutions and brings to Semtech a world-class engineering team. Together, we will create a portfolio of wireless capability from ultra low power, sub-1-GHz platforms targeted at industrial applications, through microwave RF and millimeter-wave technology platforms targeted at the highest performance communication challenges in the industry. In addition, SMI's leadership position in 40-bps and 100-bps communications will elevate Semtech's importance to the communications infrastructure customers who already purchase our leading protection, power management, and timing synchronization products. Together we are well positioned to capitalize on some of the fastest growing market segments in the communications and industrial segments."

Charles Harper and Javed Patel, Sierra Monolithics president and CEO, respectively, will both become members of the Semtech leadership team reporting to Mohan Maheswaran after the transaction’s close.

Under terms of the agreement and plan of merger, Semtech will pay the stockholders of Sierra Monolithics $180 million in cash at the closing. In addition, at the closing Semtech will also assume the existing unvested options of Sierra Monolithics' employees valued at approximately $8 million and at closing will grant to employees additional equity incentives up to $12 million in value. Semtech will place $18 million of the cash consideration into escrow for 12 months to meet any indemnifiable claims pursuant to the terms of the definitive agreement. The transaction will be funded with Semtech's existing cash reserves. In association with repatriating cash domiciled overseas to fund the transaction, Semtech expects to incur a one-time tax liability of approximately $33 million in Q3 FY10.

The closing of the transaction remains subject to closing conditions, including the expiration or termination of the Hart-Scott-Rodino Act waiting period and obtaining other required consents.

Morgan Stanley & Co. Inc. provided exclusive financial advisory services to Semtech and Paul, Hastings, Janofsky & Walker LLP served as legal counsel for Semtech. Jefferies & Company, Inc. served as financial advisor to Sierra Monolithics and Morrison & Foerster LLP served as legal counsel for Sierra Monolithics.

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