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Leading semiconductor manufacturer Microchip Technology Inc. (MCHP - Analyst Report) recently inked a definitive agreement to acquire integrated circuits (IC) manufacturer Supertex Inc. for $33 per share in cash. The purchase price equates to a total equity value of about $394 million and a total enterprise value of approximately $246 million, after excluding Supertex’ cash and investments to the tune of $148 million.

The acquisition is expected to close in the second quarter of 2014, subject to the fulfillment of mandatory regulatory approvals. The strategic purchase will enable Microchip to expand in the Medical, Industrial and Lighting verticals. Microchip is also expected to leverage Supertex’ strong domain knowledge in high voltage analog and mixed signal technologies to achieve significant operating synergies and create cross-selling opportunities. Consequently, the acquisition is anticipated to be accretive to Microchip’s non-GAAP earnings per share in the very first quarter of its operation post-merger.

However, Supertex’ decision to merge with Microchip has stirred up a hornet’s nest as to whether the proposed deal is made in the best interest of Supertex’ shareholders. As such, Robbins Arroyo LLP, which represents individual and institutional investors in shareholder rights litigation, is investigating the transaction to find whether Supertex is undertaking a fair process to obtain maximum value and adequately compensate its shareholders.

In the third quarter of fiscal 2013 (results declared on Jan 21, 2014), Supertex had recorded healthy year-over-year increases in net sales, net income and net margin. Net sales increased 21% year over year to $17.4 million, while GAAP earnings almost doubled to 23 cents per share from 12 cents per share in the year-ago period. Earnings also comfortably beat the Zacks Consensus Estimate by 5 cents. In addition, net margin increased 10% for the first nine months of fiscal 2013 from the comparable year-ago period.

Given the impressive numbers, it is believed that Supertex could well have prospered on its own instead of merging with Microchip. Even if the deal is closed, Supertex shareholders possess the right to file a lawsuit to ensure that the board of directors obtains the best possible price for its shareholders.  

Despite the hoopla, Supertex shares have soared 35.1% to $32.95 at close of trading on Feb 10, while Microchip shares remained almost flat at $44.76.  

Microchip presently has a Zacks Rank #3 (Hold). Players in the industry that are worth mentioning include Montage Technology Group Ltd. (MONT - Snapshot Report) and NXP Semiconductors NV (NXPI - Snapshot Report), both of which carry a Zacks Rank #2 (Buy).

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