The tussle for control of International Rectifier Corp. is about to get ugly or fizzle out depending upon how suitor Vishay International Inc. responds to IR's rejection of its $1.6 billion acquisition offer.
IR's board of directors made it clear in a letter issued Friday (August 29, 2008) that it would prefer Vishay immediately terminate the courtship and let the power IC vendor continue with plans already afoot to correct the problems that resulted in a sharp drop in its market value.
Those problems, including misstatement of financial results and other possible management challenges, sank IR's stock price and gave Vishay the opening to make the offer described by IR as "inadequate, opportunistic and not in the best interests of International Rectifier and its shareholders."
Furthermore, "the proposal significantly undervalues the company and its future prospects when compared to the value-creation strategy being implemented by our management team," said Richard Dahl, chairman of International Rectifier's board of directors in a statement.
Now the ball is back in Vishay's court but the main challenge facing Felix Zandman, executive chairman of the company, is that even increasing the offer by a larger premium may still not get IR's board behind the transaction.
In an interview following its August 15 offer for IR, Zandman told EETimes "IR belongs to Vishay and Vishay belongs to IR," adding that the proposed deal makes sense for us, for IR and our shareholders."
That's not the way IR sees it. The company's stock price had traded as high as $38.47 in the last year, giving IR almost twice the valuation Vishay offered.
At $21.22, Vishay's proposed acquisition price is 45 percent below IR's 52-week high although it represented a 13 percent premium on IR's trading price one day prior to the offer.
Zandman said Vishay decided to make the discussions between the companies public it was concerned news of the offer could leak and drive up the purchase price.
A similar scenario in the past forced Vishay to walk away from a planned acquisition, he said.
While analysts believe Vishay would still like to close the IR acquisition and possibly raise its offer for the company, they argued a substantial increase in the price would not be in Vishay's interest especially because it doesn't have enough cash to fund the deal and would have to borrow from investors.
"Any further price increase by Vishay would increase debt requirements and make this deal even more challenging given the current unfavorable market conditions," said Kevin Kessel, an analyst at JPMorgan Chase & Co. in a report. "We remain cautious on this deal and believe it poses financing as well as operational risk that should not be underestimated."