Late Monday, Conexant revealed that Golden Gate Private Equity (which I’m told is Golden Gate Capital, the San Francisco PE firm) had offered to buy Conexant for $2.36 to $2.45 a share cash. Conexant has about 82 million shares outstanding, which means that Golden Gate is offering about $201 million. Including debt, Bloomberg is valuing the deal at $311 million.
Conexant already has an offer on the table from Standard Microsystems, which in January offered to buy the company for $2.25 a share, or $284 million (including debt). Christine King, Standard Microsystems CEO, said yesterday that the merger agreement between SMSC and Conexant remains in effect. However, Standard Microsystems will have the opportunity to change the deal if Conexant determines that another offer is superior.
Today, the potential bidding war is causing Conexant shares to gain 36 cents, or 17.37%, to $2.46.
Newport Beach, Calif.-based Conexant is a communications and network chipmaker that serves the imaging, audio, embedded modem and video surveillance market. Conexant, which has a $201 million market cap, would be a small bite for Golden Gate. But the San Francisco PE firm has frequently invested in tech companies. Most recently, Golden Gate was part of a consortium — which included Francisco Partners and Thoma Bravo– to buy Novell for $2.2 billion.
So why is Golden Gate interested in Conexant? The company, which was spun off by Rockwell International in 1999, is losing money. On Monday, Conexant reported that first quarter revenue dropped 25% to $46.1 million for the period ended Dec. 31 from $61.8 million for the time period ended Jan. 1, 2010. The company reported a first quarter net loss of about $9.7 million, compared to $8.3 million in profit for the year-earlier quarter. Long-term debt stood at $173.6 million.
Blayne Curtis, a Jefferies analyst, said in a research note Tuesday that he was surprised to see a higher offer for Conexant given the company’s eroding revenue base and high debt load. “While we are admittedly very surprised by this latest offer, we believe there is high likelihood that SMSC will revise its offer given the strategic fit between the two companies,” he wrote in the note.
Conexant has had many challenges to overcome, including the sale of assets and other efforts to improve profitability, a source added. More than 50% of Conexant’s sales come from providing chips for embedded modems and fax modems. “This is a legacy business that will slowly fall off for them,” the source says.
So where is Golden Gate’s interest coming? Conexant’s connection to the PE firm comes from Dan Artusi, who is the former CEO of Conexant. Artusi “suddenly” left the company in April 2008. He is now listed as an operating executive with Golden Gate. It’s not clear when Artusi joined the PE firm.
Officials for Golden Gate declined comment. Conexant and SMSC couldn’t be reached for comment.