Microchip Technology signed a definitive agreement to acquire Micrel for $14 per share. Micrel shareholders may elect to receive the purchase price in either cash or shares of Microchip common stock.
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The acquisition price represents a total equity value of about $839 million, and a total enterprise value of about $744 million, after excluding Micrel's cash and investments on its balance sheet of approximately $95 million.
This represents a premium to Micrel's closing stock price as of May 6, 2015 of 3% and a 30% premium to Micrel's closing stock price on August 7, 2014, the day Starboard Value LP disclosed a 12.0% interest in Micrel in a Schedule 13D filing with the SEC.
Concurrent with this announcement, Microchip announced that its Board of Directors has authorized an increase in the existing share repurchase program to 20.0 million shares of common stock from the approximately 2.5 million shares remaining under the prior authorization.
Under this program, in the next several months, Microchip intends to repurchase the approximate number of shares it issues in the Micrel acquisition, which is expected to result in the transaction having the accretive effects of a cash transaction from a financial perspective.
The acquisition is expected to be mildly dilutive to Microchip's non GAAP earnings per share immediately after the close, but is expected to be accretive in the first full quarter after completion of the repurchase of the number of shares issued in the transaction.
As previously announced by Micrel, the Micrel Board of Directors created a Transaction Committee entirely comprised of independent directors on January 20, 2015 to consider a range of strategic alternatives, including a potential sale of Micrel. The process leading up to the merger agreement with Microchip was overseen by the Transaction Committee which unanimously recommended the approval of the merger agreement to Micrel's Board of Directors.
The acquisition has been unanimously approved by the Boards of Directors of each company and is expected to close early in the third quarter of calendar 2015, subject to approval by Micrel's shareholders, regulatory approvals and other customary closing conditions.
All of Micrel's directors and certain executive officers have signed voting agreements with Microchip under which they must vote in favor of the merger.
In the proposed transaction, shareholders of Micrel may elect to receive $14 per share in cash or $14 per share in Microchip common stock, valued at the average closing sale price for a share of Microchip common stock for the ten most recent trading days ending on the second to last trading day prior to the closing. A minimum of 42% of the shares of Micrel common stock will receive shares of Microchip common stock as consideration.
If the cash consideration is oversubscribed, the cash election will be subject to proration in accordance with the terms of the merger agreement. The stock component of the consideration is intended to represent a tax-free exchange for U.S. federal income tax purposes. ■
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