WAYNE, N.J. " Conexant Systems and GlobespanVirata Inc. completed an all-stock merger Monday (Nov. 3), a move the two large broadband chip vendors said will allow them to increase their ability to develop semiconductor solutions for the emerging digital broadband home.
Both GlobespanVirata and Conexant have worked hard over the past year or so to reinvent themselves in the broadband sector. Conexant spun off its wireless IC developer SkyWorks, networking IC developer Mindspeed and foundry Jazz Semiconductor so it could focus solely on developing chip sets for narrowband and broadband communication applications.
Meanwhile, GlobespanVirata has made significant moves this year to add WLAN capabilities to its popular DSL chip set offerings after paying $365 million for Intersil's wireless unit in July. The companies are now taking the next step, forming a combined broadband company with DSL, cable modem and WLAN expertise.
"There is a stronger long-term revenue growth then if we operated as two standalone operations," said Dwight Decker, current chair and CEO of Conexant.
To achieve strong long-term revenue growth, the combined company will have to start answering some tough questions. Unlike other acquisitions, Conexant and GlobespanVirata have some significant overlap areas. Both offer DSL chip sets targeted at the customer premise equipment sector and, as GlobespanVirata CEO Armando Geday pointed out, overlap in ADSL customer base in the Asia market.
The companies also must deal with issues in the wireless LAN market. Through its earlier Intersil acquisition, Globespanvirata is a large player in the 802.11b, 802.11g and 80.211a sectors. Conexant has also been making a move in this market, releasing 802.11b and 802.11g chip sets for the sector.
To move forward, Conexant and GlobespanVirata must still make hard choices on which existing products they plan to back and what technology roadmaps they plan to follow. They might also have to make some hard choices on the staffing front.
At least the staffing issues, the combined company appears to be leaning against layoffs among DSL and WLAN engineers. Decker said one approach is to pick a team and let the other go. However, in this merger, Decker said the companies will "apply resources to strengthen" the company's overall position in areas like WLAN and DSL.
"Now we have additional R&D dollars to spend," Geday added.
Outside of the overlap areas, however, there are some technologies both companies add through the acquisition. To date, GlobespanVirata has focused its efforts on the DSL portion of the broadband sector. Through the merger, the company now gains access to Conexant's cable modem line as well as its HomePlug powerline networking technology.
For Conexant, the addition of GlobespanVirata brings a central office chip set to its existing DSL portfolio. Conexant also gains close ties with the former Intersil team. Last year, Conexant partnered with Intersil to develop a combined 802.11b/ADSL router chip. Now, the two groups will work together on finding new applications where WLAN capabilities can be embedded with other home networking and multimedia technologies.
Under terms of the merger agreement, GlobespanVirata shareholders will receive 1.198 shares of Conexant common stock for each outstanding share of GlobespanVirata stock. Based on Friday's close, Conexant shareholders will own 62.75 percent and current GlobespanVirata shareholders will own 37.25 percent of the combined company's stock.
The merged company, which will employee approximately 2,400 people worldwide, is valued at approximately $2.8 billion with annual revenues of approximately $1.2 billion. The new company will retain the Conexant name and will centralize its headquarters in GlobespanVirata's current Red Bank, N.J. facility. Decker will serve as the chair of the new Conexant operation while Geday, who previously worked at Conexant, will serve as the company's CEO. Matt Rhodes, Conexant's current president, will retain his position after the acquisition.
The transaction is subject to customary closing conditions, including shareholder and regulatory approvals, and is expected to be completed in the first quarter of 2004.