Zarlink Semiconductor accepts takeover offer from California-based Microsemi

Zarlink Semiconductor Inc has become the latest homegrown Canadian high-tech firm to be sold to a foreign buyer. The Ottawa-based, virtually fables semiconductor firm is being purchased by Microsemi Corp, Aliso Viejo CA, for US$525 million. The purchase includes $105 million in Zarlink cash reserves. The sale of Zarlink closely follows the sale of Waterloo ON-based DALSA to Teledyne Technologies Inc, Thousand Oaks CA, earlier this year.

The successful Microsemi offer was the second bid it made for Zarlink, upping its offer to $3.98 per share. The deal was facilitated by a US$800-million, seven-year term loan facility from Morgan Stanley Senior Funding Inc.

Zarlink was founded in 2001 following the sale of Mitel Corp's private branch exchange division back to company co-founder Terry Matthews. Zarlink was quickly spun out, creating a pure play semiconductor firm with a foundry in Bromont QC. (The Bromont facility was sold to DALSA in 2002). More recently, the firm was expanding into the medical sector after cutting unprofitable business lines.

The initial purchase bid in July of $3.35 per share was unexpected and viewed as a hostile takeover and opposed by Zarlink chairman Dr Adam Chowaniec and his board as far below the firm's true value. But Zarlink's sagging stock price and the sweetened second offer was apparently enough to sway the board, which recommended the sale of company shares last week.

In a statement following the agreement, Microsemi president and CEO James Peterson said the acquisition was a "compelling strategic fit ... Zarlink's fundamentals, technology capabilities, product roadmap and revenue growth opportunities exceeded our expectations".

Indeed, no one is denying that the purchase price represents a sweet deal for Microsemi. Zarlink and other public homegrown firms that have fallen victim to foreign takeovers have been undervalued, making them attractive takeover targets for well-financed (usually US) firms seeking to expand market share and global reach.

Zarlink has R&D expenditures of $52.5 million (FY09) and annual sales of $220 million, which will help Microsemi boost its annual revenues to more than $1 billion.

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