CSR slashes Zoran bid as shock losses emerge
Saturday 18 June 2011
The chip maker CSR is to push ahead with the takeover of Zoran but has slashed the value of its offer by almost a third after its US target revealed shock losses.
The Cambridge-based wireless technology company, which specialises in Bluetooth chips, yesterday said the deal announced in February would be completed, but at a discount to the $679m (£419m) original bid.
Joep van Beurden, the chief executive of CSR, said the company was forced to renegotiate in the wake of a devastating first-quarter trading update from the imaging specialist after the deal had been agreed. He said the update "surprised the market negatively, and frankly surprised us as well".
It emerged that Zoran's losses had increased from $4m to $30.4m after the company was affected by the earthquake and tsunami in Japan as well as news that Cisco was to shut down its Flip video camera line, a significant contract for the group.
Mr Van Beurden continued: "A deal has to make sense strategically and financially. Those numbers called the latter point into question. Yet the strategic reasons were still there and we are fair and reasonable people."
The two companies had originally met in early 2010 to discuss a strategic partnership. They decided a merger would be more fruitful and agreed a deal in February at $13.03 a share.
In the wake of Zoran's results in May, the two sides returned to the table and hammered out a "very fair" deal – according to Mr Van Beurden – that valued Zoran at $484m. Along with the terms of the deal, the structure was also altered. What was an all-share bid will now largely be made in cash. Analysts at Numis said the new terms "make sense".
Levy Gerzberg, the founder and chief executive of Zoran, said: "Both companies agreed it was in our mutual best interests to revise the deal terms." Both CSR and Zoran confirmed their previous second-quarter guidance yesterday.
George O'Connor, an analyst at Panmure Gordon, said: "The operational rationale for the deal, industrial diversification, was not in doubt, and now CSR shareholders own the lion's share of the combined entity." The UK company will hold 83.5 per cent of the merged group.
Mr Van Beurden said the deal still made sense as it would bring imaging and video capabilities to its existing market and provide a "step change in CSR's total scale and addressable market".
The two companies said that the deal should generate $50m in cost synergies by the end of March. A further $35m will be saved from slashing operating expenditure and $15m from the cost of goods sold. Zoran is also undergoing a $30m cost-cutting drive.
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