CSR Announces Merger With Zoran Corporation

CSR is a global leader in wireless connectivity and location. Zoran provides market-leading imaging and video technology for digital camera, home entertainment and multifunction printer products. In 2010, Zoran had total pro forma revenues of $441 million**.



Strategic rationale

The merged company will provide differentiated, integrated technology that addresses the rapidly growing market for connected, location-aware multimedia devices including handsets, digital cameras and home entertainment equipment. Combining the two highly complementary technology portfolios is designed to uniquely position the merged company to deliver advanced platforms to capture and stream media-rich content. This will strengthen the ability of the combined customer base to provide differentiated products to the end consumer. The merger is designed to:



- Strengthen CSR’s core business by adding imaging and video capabilities within its existing end markets;

- Create new growth opportunities within global consumer markets such as internet enabled, location-aware digital cameras and the next generation of home entertainment products and peripherals;

- Provide a step change in CSR’s total scale and addressable market, creating a top 10 fabless semiconductor company; and

- Accelerate CSR’s strategic shift into higher margin platforms and integrated solutions.



Financial rationale

- Diversifies revenue base by customer, technology and market;

- Expected to generate run rate cost synergies of US$50 million by the end of 2011, whilst continuing investment in the combined technology pipeline; and

- Expected to provide strong double digit EPS ongoing cost savings accretion in 2012 before any incremental revenue synergies, taking into account the expected cost synergies and the Share Buyback***.



Transaction overview

Zoran shareholders will receive ADSs representing the equivalent of 1.85 ordinary shares of CSR for each share of Zoran common stock held, which, as at close on 18 February 2011 represents a value of US$13.03 per share of Zoran common stock or a total consideration of approximately US$679 million*. In addition, CSR plans to buy back up to US$240 million of CSR's ordinary shares during the next 12 months via an on-market buyback programme. The Share Buyback is intended to achieve an overall financial impact on CSR broadly equivalent to a transaction structured with approximately 65% stock and 35% cash. The Share Buyback, which will replace the US$50 million programme announced on 13 September 2010, of which approximately US$37 million has been expended, is expected to commence as soon as practicable following this announcement.



The other key aspects of the transaction are:



- The implied offer price represents a premium of approximately 39.9% to the closing price of each share of Zoran common stock of US$9.32 on 18 February 2011, the last Business Day before this announcement, and a premium of approximately 44.0% to the average closing price of shares of Zoran common stock over the past twelve months;

- Net of Zoran’s cash balance of US$261 million as at 31 December 2010, the Transaction Value implies an enterprise value of US$418 million;

- Following completion, Zoran shareholders will own approximately 35% of the enlarged CSR group on a fully diluted basis**** as of 18 February 2011; ordinary shares of CSR will be issued to Zoran shareholders through a new sponsored American Depositary Shares (“ADS”) programme and application will be made to have the ADSs admitted to trading on the NASDAQ Stock Market.



CSR’s Chairman, CEO and CFO will lead the merged company. Dr. Levy Gerzberg, Co-Founder, President, CEO and Director of Zoran will be joining the CSR board as a Non-Executive Director. Zoran will also propose one additional independent Non-Executive Director to join the CSR Board.



Completion is expected in the second quarter of 2011 and is subject to CSR and Zoran shareholders and regulatory approvals and other customary closing conditions.



Commenting on the Merger, Joep van Beurden, CEO of CSR, said:



“This is an exciting transaction on both a strategic and financial level. Digital electronic devices are becoming increasingly connected and full of media-rich features, including the ability to stream images from your camera to your PC or video conferencing from your Smartphone. Zoran’s market leading imaging and video capabilities, combined with our own connectivity and location capabilities, make this a great opportunity for us. The same is true in the home entertainment space where wireless connectivity is increasingly being adopted in a range of consumer devices such as digital TVs – Zoran’s image technology combined with our connectivity skills will provide a differentiated proposition which will be appealing for our customers.



“We expect the merger to enhance the merged company’s financial strength and to create new and wider revenue opportunities that neither party could pursue on its own. Combined with the Share Buyback we expect the transaction to be strongly double digit accretive in 2012.”



Dr. Levy Gerzberg, Co-Founder, President, CEO and Director of Zoran, added:



With this transaction, we can leverage the world class technology, talent and resources of two great companies and create compelling opportunities for our customers, employees and consumers. As a pioneer in digital video and still imaging, Zoran has an extensive portfolio of proprietary technologies that is highly complementary to CSR’s existing capabilities. Consumers are increasingly demanding connectivity in virtually all areas of their lives, and the combined company will be uniquely positioned to meet that demand by offering Zoran's innovative solutions together with CSR’s connectivity and location technology.



In its determination that the CSR transaction is in the best interests of Zoran and its stockholders, the Zoran Board considered other potential cash and stock merger partners, as well as Zoran's’s stand-alone options.



J.P. Morgan Cazenove and Rothschild acted as CSR’s financial advisers and Wilson Sonsini Goodrich & Rosati and Slaughter and May acted as CSR’s legal counsel. Goldman Sachs & Co. acted as Zoran’s financial advisor and Jones Day acted as Zoran’s legal counsel.



An analysts’ meeting to discuss the Merger will be held at 9.00 am GMT on Monday, 21 February 2011 at the offices of J.P. Morgan Cazenove, 20 Moorgate, London EC2R 6DA.



This summary should be read in conjunction with the full text of this announcement.



*Based on the Closing Price of 434 pence per CSR Share and a USD/GBP exchange rate of 1.6234 on 18 February 2010, the last Business Day before this announcement and assuming the exercise of in-the-money options according to the treasury method.



**Zoran revenue of $441 million assuming a full year 2010 contribution from Microtune which was acquired on 30 November 2010.



***This statement does not constitute a profit forecast and should not be interpreted to mean that earnings of CSR in the first full year following the Merger, nor in any subsequent period, will necessarily match or be greater than those for any preceding financial year.



****Based on the closing price 434 pence per CSR share and the Closing Price of US$9.32 per Zoran share and a USD/GBP exchange rate of 1.6234 on 18 February 2011, the last Business Day before this announcement, and assuming the exercise of in-the-money options according to the treasury method.