How much is Silicon Storage Technology Inc. worth to Microchip Technology Inc.? Definitely a lot more than the company has so far offered to pay for the consumer electronic IC vendor.
By some estimate, Microchip's enterprise value could be boosted by more than half a billion dollars and up to $700 million upon the successful closing of the transaction. In fact, a little more investment in SST's hugely profitable licensing business could further expand the transaction value, according to Farukh Farooqi, an investment analyst with Marquis Research LLC who owns shares in SST.
In order to extract the presumed value, however, and because of growing interest in the transaction from a major private equity group, Microchip will need to further jack up and substantially improve upon its current $3.00 per share, or $290 million offer for Sunnyvale, Calif.-based SST.
A recent Securities and Exchange Commission filling indicate Cerberus Capital Management L.P., has entered into the fray and is bidding for control of SST with support from chairman and CEO Bing Yeh.
Microchip might have been sucked into an already messy transaction and may need to substantially raise its offer for SST again to close the deal and avoid getting its otherwise spotless reputation tarnished in the process.
Microchip has raised its offer for SST five percent since it first offered to buy the company Feb. 2. Even Microchip's initial $2.85 per share bid for SST represented a 43 percent improvement upon an earlier offer the memory IC vendor received late in 2009 from another suitor.
"We continue to be excited about this transaction and believe that it remains attractive for both parties for all of the financial and technological reasons that we earlier stated," said Steve Sanghi, president and CEO of Microchip in a statement.
Sanghi's excitement about the SST transaction is understandable but passion alone will not seal the deal for Microchip. SST's licensing revenue of about $40 million per year is a major draw for Microchip in addition to the about $215 million in cash, short-term securities and other long-term investments on the company's balance sheet as at the end of the fourth quarter. Microchip also stands to gain from the planned sale of other SST businesses.