Blogs & Comment

Gut-check for Gennum, as Tundra receives rival bid

Another Monday, another update to Gennum‘s proposed acquisitionof Ottawa-based Tundra Semiconductor: Integrated Device Technology ( Nasdaq: IDTI) has made a rival all-cash bid for Tundra, offering $6.25 per share, or about $120.8 million.
The offer comes ten days after Gennum, based in Burlington, Ont., sweetened its own initial bidto $5.81 per share, or about $112.1 million. In a press release, Gennum said it was reviewing its options, and that it will decide how to respond by May 1, and Tundra’s shareholder meeting is currently set for a week later. Tundra would pay Gennum a $5-million break-free should its offer fail.
IDT, which is based in San Jose, Calif., is a larger rival to Gennum, offering mixed-signal semiconductor designs to a broader range of end markets. As of the end of 2008, IDT had US$302.4 million in cash on its balance sheet.
At the time of writing, Tundra stock was trading at $6.29. It’s been 18 months since Tundra stock has traded in a similar price range.
My take: Tundra co-founder and chairman Adam Chowaniec told me in an interview that after sitting down with Gennum, Tundra did look at alternatives before recommending its initial offer. Considering investors’ and analysts’ concerns over the price Gennum was willing to pay, you have to wonder if IDT was ever approached, and if it was, what has made it reconsider making a bid. Maybe it didn’t see the possibilities of Tundra’s portfolio until Gennum had to justify its proposed acquisition. IDT’s strategic rationalecertainly rings similar to Gennum’s:

…The strength of Tundra in serial switching and bridging using PCI Express, Rapid IO and VME, combined with IDTs mixed-signal portfolio and channel capabilities, would reinforce IDTs leadership in interconnect solutions for the communication, computing, and embedded segments, said Dr. Ted Tewksbury, president and CEO at IDT.We believe that this strategic business combination would provide customers with a broader product offering as well as improved service, support and future roadmap of serial connectivity innovations.

What will Gennum do? When I interviewed CEO Franz Fink for my feature story, he spoke with passion about the strategic value of the Tundra deal, and acknowledged there aren’t many other alternative targets. “There is no good or bad time for a deal as long as you’re absolutely convinced that what you’re trying to build is the right strategic next step in the evolution of the company,” he said on Mar. 26. “Then it only comes down to who can you do it with? There are only a few opportunities out there. And one of them is too big, because they are $800 million in market capitalization and doing a lot of other thingsthat’s IDTand then there’s PLX [ PLX Technology], and then there’s Tundra.” (PLX Technology is based in Sunnyvale, Calif., and currently has a market cap of about US$103 million.)
For Fink and Gennum, it’s gut-check time. The company had US$40.7 million in cash on its balance sheet as of Mar. 1(its Q1 ended Feb. 28), and at the time of writing, a market cap of $182 million. Will it be able to come up with a juicy counteroffer? If a Gennum-Tundra deal does come together, it may look in a financial sense like less of an acquisition, and more like a merger of equals. And if it doesn’t, Gennum could have to rethink its strategy.