The Deal
Saturday, October 25, 
10:51 pm

by Paul Whitfield
[Posted on December 11, 2007 - 10:17 AM]

Semiconductor maker STMicroelectronics NV said Tuesday, Dec., 10, it had agreed to buy California's loss-making Genesis Microchip inc. for $366 million in cash.

The deal will boost STM's presence in the $1.5 billion digital TV market, one of the fastest growing consumer semiconductor markets. Genesis is the world's biggest maker of microchips for flat panel computer displays.

STMicroelectronics will pay $8.65 per share, a premium of $3.25, or 60%, to Santa Clara, Calf.-based Genesis closing price Monday and a 26% premium to the average closing price during the last sixty trading days.

"We are somewhat surprised," said analysts at Dutch bank ABN Amro Bank NV in a note. "This could raise some questions regarding the quality of STM's current [digital televison solution]. However, given the price paid, we see this as an opportunistic transaction."

In the year to Sept. 30, Genesis reported sales of $191 million and lost $4.6 million in the final quarter. It had $183 million of cash and equivalents, putting its enterprise value in the current offer at $153 million.

The deal breaks a years-long acquisition drought at Geneva, Switzerland-based STM, which has preferred to focus on organic growth while its cash pile mounted to around $3.3 billion as of Sept. 29. In October, STM chief executive officer Carlo Bozotti said his company could pursue a more aggressive acquisition policy as it seeks to become a "real leader" in multimedia chips and in home appliances.

In May STM agreed to spin off its flash memory unit into a $3 billion joint venture with chipmaker Intel Corp. and private equity firm Francisco Partners LP.

The combination of STM and Genesis will bring together STM's strength in "front end" processing technologies in digital TV and Genesis leading position in "back end" image and video processing and digital interconnect technologies, the companies said.

"While this acquisition would give STM a stronger position in the digital TV market than it has been able to achieve on its own, the digital TV chip market is an unattractive one with continuous shifts in market share and low margins for most players, including Genesis Microchip," noted Dresdner Kleinwort analysts Tuesday.

Morgan Stanley provided financial advice to STM and Shearman & Sterling LLP acted as legal counsel. Goldman, Sachs & Co. provided financial advice to Genesis Microchip and Wilson Sonsini Goodrich & Rosati Professional Corporation provided counsel.

Shares in STM, in which the French and Italian states have an indirect holding of about 25%, traded early afternoon Tuesday on the Paris bourse at €10.49, down €0.16, or 1.5%, equal to a market capitalization of €9.5 billion.

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