Atmel ponders $2.3B offer to split its operations

Atmel Corp. officials are reviewing a $2.3 billion hostile offer made last week by two Arizona semiconductor companies to split its operations, which include an 1,800-employee plant in Colorado Springs, between them and a third buyer.

Chandler, Ariz.-based Microchip Technology Inc. offered $5 a share in cash for San Jose, Calif-based Atmel and would sell off what it called Atmel's "underperforming" nonvolatile memory, radio frequency and automotive units to Phoenix-based ON Semiconductor Corp. Microchip also said it would sell Atmel's application-specific chip business to a third company it did not identify, but that had indicated interest in acquiring the unit in recent talks.

After selling off units to ON and a third company, Microchip would be left with Atmel's microcontroller line of chips, which Microchip said would complement its line of similar products. Microchip Chief Executive Steve Sanghi said the deal offers "significant synergies that can be harvested for shareholders, customers and employees by consolidating the operations of semiconductor companies focused on similar end markets."

Atmel's local plant is the company's largest manufacturing operation and the only remaining chip plant in Colorado Springs. The plant primarily makes microcontrollers, but also produces nonvolatile memory chips, application-specific semiconductors and chips used in the automotive industry. Microcontrollers are used in touchscreens, battery-management systems and a variety of other devices, while nonvolatile memory chips retain information when power is cut.

The $5-a-share offer is 52 percent more than Atmel's stock price of $3.28 on Wednesday, the day before the offer was made public. It also is 10 percent below the average price of the previous 10 trading days and 16 percent below the average for the previous 30 trading days. Atmel's shares soared 34.2 percent to $4.40 on Thursday, but have declined to $3.79 amid a broad market selloff and doubts about whether Atmel will agree to the deal.

Atmel's earnings fell 93.7 percent to $1.88 million, or zero cents a share, in the first half of the year from $29.6 million, or 6 cents a share, a year ago, mostly from restructuring and other one-time charges. Without those charges, earnings would have fallen 12.7 percent to $30.6 million, or 7 cents a share. Revenue during the same period was up 4.1 percent to $832.1 million, mostly from growth in its microcontroller products.

Although the companies began informal merger discussions several months ago, an Atmel spokesperson said no price had been discussed before Microchip went public with its offer. A letter from Sanghi and ON Chief Executive Keith Jackson to Atmel's directors said they went public with their offer after Atmel board members said they were not willing to consider a transaction "at this time under any circumstances."

In their letter, designed to put pressure on Atmel's directors, Sanghi and Jackson said they believe the offer "is simply too compelling not to bring to your shareholders" and "offers your stockholders an extremely attractive return."

The offer comes as Atmel is trying to restructure operations by selling off European manufacturing facilities and about 18 months after company founder George Perlegos lost a proxy fight to resume control of the company after he had been ousted.

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