SHARES of ARM Holdings, the microchip designer fell almost 19 per cent yesterday after the company announced plans to buy Artisan Components, a Californian peer, for $913 million (£500 million) in cash and shares.
The scale of the deal, ARM’s largest acquisition since its flotation in 1998, fuelled concerns that ARM could be overpaying for Artisan and separately raised fears that US investors might sell their shares in the company. ARM shares ended 18¾p weaker at 81¾p.
Warren East, ARM’s chief executive officer, said the acquisition would give the Cambridge-based company a bigger slice of the revenues generated from the design, manufacture and sale of microchips that power popular gadgets such as mobile phones, DVD players and computer game consoles.
Based on closing prices for ARM’s American Depositary Shares (ADSs) last week, Artisan investors will receive $9.60 in cash and shares equal to 4.41 ARM ADSs for each outstanding Artisan share. The price equals about $33.89 per Artisan share and represents a 42 per cent premium to its closing price on Friday.
“The valuation for Artisan looks rich,” Andrew Griffin, an analyst at Merrill Lynch, said.
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However, combining the companies would lead to strong revenue growth, he said.
Artisan, which had sales of $83 million and net profits of $17.3 million last year, has a similar business model to ARM, but occupies a different part of the microchip design market. While ARM designs the core processors, Artisan Artisan provides designs to help to manufacture integrated software and electronic circuits.
The two companies share few common customers, even though many of the devices commonly available on the high street today include technology from both of them. “Artisan has a proven sales channel which will be highly complementary with the ARM sales channel,” Sir Robin Saxby, chairman of ARM. said.
Yet the size of the deal still flustered analysts and investors. “I think Artisan is a good company, and it’s an interesting longer-term deal, but people weren’t expecting ARM to do anything other than piecemeal acquisitions,” Brian Ashford-Russell, a fund manager at Polar Capital Partners, said.
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LAIRD MOVES INTO MOBILES
Laird Group, which began life as shipbuilder 140 years ago, moved into the mobile handset market yesterday with the £107 million cash and shares purchase of an American maker of phone antennas.
The purchase of Centurion Wireless Technologies was accompanied by the disposal of the group’s plastics division for $65 million to the privately held Blackfriars Corporation, as Laird, a small conglomerate, tries to boost its exposure to fast-growing industries. Global demand for mobile phones is growing rapidly, fuelled by demand from developing countries.