Skyworks, Microsemi Raise Their Bids In Battle For PMC-Sierra

Chip manufacturers Microsemi and Skyworks Solutions traded financial punches Friday as each sought to one-up the other in their bidding war for semiconductor company PMC-Sierra.

Hours after Skyworks sweetened its original offer for PMC-Sierra to $11.60 per share, Microsemi countered with an offer of $11.88.

The bids place the competing offers for PMC-Sierra, based in Sunnyvale, Calif., in the neighborhood of $2.3 billion to $2.4 billion.

[Related: Intel Ends The Rumor Mill, Plans To Acquire Altera To Spur Internet of Things Business]

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The tug-of-war over PMC-Sierra highlights the slowing growth of the chip industry over the past year. That has given rise to some of the largest deals the market has seen, such as Intel's $16.7 billion acquisition of Altera and Avago Technologies’ $37 billion deal to acquire Broadcom.

The boards of both Skyworks and PMC-Sierra have approved the latest Skyworks offer, according to a statement from Skyworks, based in Woburn, Mass. However, this time around, the agreement includes an increase in the termination fee from $70 million to $88.5 million. Skyworks said it intends to pay for the acquisition through a combination of cash and debt financing.

Initially, Skyworks and PMC-Sierra agreed to a deal of about $2 billion. However, roughly two weeks later, Microsemi, based in Aliso Viejo, Calif., pushed an unsolicited bid believed to be near $2.4 billion.

"Our revised proposal offers superior value to PMC's shareholders, and Microsemi is uniquely positioned to realize significant synergies," James J. Peterson, Microsemi's chairman and CEO, said in a statement.

Microsemi sells semiconductor and system solutions to customers in such verticals as communications, defense, security, aerospace and industrial markets; Skyworks sells analog semiconductors to customers in such industries as automotive, broadband, medical, military and communications businesses.

PMC-Sierra also sells storage and networking products.

"Microsemi has a strong track record of integrating acquisitions and driving profitability, and we will benefit from increased scale, industry-leading margins, diversified market exposure, consolidated infrastructure and substantial cost savings in a combination with PMC," Peterson said after his company pushed its original offer Oct. 19.

Within the past year, slowing growth and rising costs have driven larger deals in the chip industry. According to a report by Dealogic, referred to in The Wall Street Journal, chip companies have announced $100.6 billion in mergers and acquisitions so far in 2015, dwarfing the $37.7 billion in deals announced in 2014.

Meanwhile, market research firm Gartner has predicted that worldwide semiconductor sales will decline 0.8 percent in 2015, the first revenue decline since 2012. But it also predicts that semiconductor sales will more than double next year, by 1.9 percent, to $344.1 billion, easing some of the pressure in the industry.

"[We're seeing a] lack of demand in key application areas," Andrew Norwood, research vice president at Gartner, told CRN recently.

Norwood said PC production is expected to decrease about 10 percent for 2015. He also said the strength of the U.S. dollar is pushing up the cost of PCs in places like Europe and Japan because key components like the CPU and DRAM are priced in dollars, making them more expensive for buyers in those regions, causing a reduction in demand or a shift by consumers to low-cost versions of PCs.