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Mircochip Progresses with SMSC's Merger

MCHP

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Recently, Microchip Technology Incorporated (MCHP - Analyst Report) announced that Microchip and Standard Microsystems Corporation were granted early termination of the waiting period on May 18, 2012, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

The grant comes in connection with the merger between the two companies. On May 2, 2012, Microchip Technology signed a definitive agreement to acquire Standard Microsystems Corporation for $37.00 per share in cash for about $939 million. The net value comes to $766 million, excluding SMSC’s cash and investments on its balance sheet of approximately $173 million.

Microchip also announced that the required non-U.S. filings for pre-closing antitrust clearance applicable to the merger have been submitted. The filings were submitted in China, Korea, Germany and Turkey by the end of May and early June.

Meanwhile, the completion of the merger remains subject to antitrust clearance in these countries along with approval by the stockholders of Standard Microsystems (to be decided on July 10, 2012).

Nevertheless, Microchip expects to close the acquisition by the third quarter of 2012. Microchip expects this acquisition to be accretive to the bottom line in the first quarter after its completion. Microchip believes that SMSC’s smart mixed-signal connectivity solutions aimed at embedded applications will perfectly complement Microchip’s embedded control business. We view this acquisition a definite positive. Standard Microsystems reported net sales of $412 million in fiscal 2012, which ended in February. The acquisition is expected to broaden Microchip’s existing product portfolio with the addition of SMSC’s new products and capabilities in the automotive, industrial, computing, consumer and wireless audio markets.

We currently have a ‘Neutral’ recommendation on Microchip. Our Neutral recommendation is supported by a Zacks #3 Rank, which translates into a short-term rating of ‘Hold’.

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