Microsemi announces superior proposal to acquire PMC-Sierra

Microsemi believes its cash and stock proposal would provide PMC shareholders with a substantial premium and immediate cash value, as well as the opportunity to participate in the significant upside potential of a global analogue and mixed-signal leader with a highly diversified platform for growth and profitability. Microsemi believes its proposal constitutes a 'Superior Proposal' under the terms of PMC's merger agreement with Skyworks.

Under the terms of Microsemi's proposal, PMC shareholders will receive $8.75 in cash and 0.0736 of a share of Microsemi common stock for each share of PMC common stock held at the close of the transaction. The implied total transaction value is approximately $2.4bn and the implied enterprise value is $2.2bn , net of PMC's net cash balance as of 27th June, 2015.

James J. Peterson, Chairman and CEO, Microsemi, commented: "Based on extensive discussions with PMC over the past 18 months and comprehensive analysis, we believe this transaction offers compelling strategic and financial benefits for the shareholders of both Microsemi and PMC. This acquisition will provide Microsemi with a leading position in high performance and scalable storage solutions targeted for data centre and cloud applications, while also adding a complementary portfolio of high-value communications 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."

The proposal was conveyed in an offer letter to PMC's board of directors on 19th October, 2015, together with a copy of a merger agreement, which is on substantially the same terms as the Skyworks merger agreement that Microsemi is prepared to sign. Microsemi is also prepared to amend the transaction structure to an 'exchange offer' paving the way for a closing as early as late December 2015, assuming swift action by PMC's board. Microsemi's proposal is not subject to any financing contingency and has been approved by Microsemi's board of directors.

The transaction is expected to be immediately accretive to Microsemi's non-GAAP EPS and free cash flow. Microsemi anticipates achieving more than $100m in annual cost synergies with greater than $75m of those to be realised in the first full quarter of combined operations. Microsemi currently estimates more than $0.60 of non-GAAP EPS accretion in the first full year after closing the transaction.

Microsemi intends to fund the transaction and repay its existing credit facility with existing cash, $2.7bn in new transaction debt and $0.6bn in Microsemi common stock. Shareholders of Microsemi and PMC will own approximately 85 and 15%, respectively, of the combined entity post completion of the transaction.

The transaction with Microsemi will only be subject to domestic regulatory approvals (as opposed to approvals by foreign government entities including China, which is required under the Skyworks merger agreement and likely to result in additional uncertainty and delays) and customary closing conditions, as well as the approval of PMC's shareholders.

Stifel is acting as exclusive financial adviser to Microsemi, along with O'Melveny & Myers LLP who is serving as legal adviser. Morgan Stanley Senior Funding, Inc. is providing committed financing for the transaction to Microsemi.