VLSI Technology Inc. announced its board of directors adopted a new shareholder rights agreement
and bylaw amendments to fend off a hostile bid from Royal Philips Electronics.
Philips launched the bid for all of
the outstanding common shares of VLSI after the semiconductor company declined to respond to Philip’s merger offer
within four days of the proposal. VLSI, which designs and manufactures custom and semi-custom integrated circuits
for the wireless and computing markets, plans to hold a special board meeting March 23 to review the proposal. VLSI
said it adopted the new rights and amendments to protect the board’s process of evaluating the offer.
Philips, based
in Eindhoven, the Netherlands, said early this month it would take its offer directly to VLSI shareholders and ask the
VLSI board to redeem the company’s “poison pill” defense or otherwise take action to render the plan
inapplicable to the Philips offer. Philips made a bid to acquire the semiconductor company late last month for $17 per
share, a 58-percent premium to VLSI’s closing price of $10.75 per share on Feb. 25. The tender offer is set to expire
April 1.
Philips filed suit in Delaware Chancery Court to prevent VLSI from using its poison pill defense to block
Philips’ bid for the company. If VLSI does not dismantle the poison pill defense, Philips warned that it would work to
replace the VLSI board with nominees who would allow the bid to proceed.
VLSI’s amended and restated plan,
adopted March 7, calls for rights to be triggered upon the acquisition of 10 percent of VLSI’s common stock. Prior to
the amendment, the rights plan was triggered by any person or group acquiring 20 percent or more of VLSI’s common
stock. The new plan also removes a 10-day window that potentially allowed an acquirer to redeem the rights after
replacing the board of directors.
Analysts wonder why VLSI continues to brush off Philips’ advances when the stock
in the long-term has not performed well and the company’s largest vocoder customer, Ericsson Inc., experienced flat
demand for handsets.
“Since its biggest customer didn’t grow, VLSI will have a hard time growing,”
said Will Strauss, semiconductor analyst with Forward Concepts. “One of the things I’ve seen in the cellular
business, which is where VLSI wants to be, is some companies will not touch you if you can’t ship tens of millions of
units.” Strauss said Texas Instruments, which supplies digital signal processors and vocoders to Nokia Corp. and
others, grew 29 percent in the DSP industry last year, while the entire industry only grew 9 percent.
“If
[VLSI] doesn’t start partnering with someone, their growth is going to be stunted,” said Strauss. “If I was a
significant stock holder in VLSI, I would be hollering at the board right now. VLSI stock has not done well in the long-
term.”
For Philips, a VLSI purchase would give it presence in the ASIC market, which is where all
semiconductor companies will enter eventually, said Strauss.
