Bidding wars still exist on Wall Street. This time, memory controller specialist Silicon Storage Technology (Nasdaq: SSTI) is the object of affection from larger rival Microchip Technology (Nasdaq: MCHP) and a nameless competing private equity firm.
Microchip had a done deal with Silicon Storage at $2.85 per share -- or so it thought. A round of competing bids later, the winning bid is currently $3 in cash per Silicon Storage share, right out of Microchip's cash hoard. Both boards have signed off on this amended merger agreement, but the bidding might not be over yet.
Investors appear to be holding out for a bigger payoff, because Silicon Storage shares trade at about $3.20 right now -- 7% greater than the mutually agreed contract. Since nothing will happen without shareholder approval, truculent investors could force the hands of both suitor and blushing bride.
If the merger goes through as planned -- at any price -- Silicon Storage will make Microchip a stronger business by dint of its large patent portfolio and strong expertise in memory controllers. Of course, nothing is for sure yet. A year ago, Microchip was trying to buy Atmel (Nasdaq: ATML) in a complicated three-way deal that involved selling some of Atmel's assets off to ON Semiconductor (Nasdaq: ONNN), but ON backed out and the whole deal fell apart.
That time, Atmel didn't really want to get bought out and chopped up for parts, and that difference makes Silicon Storage a more likely Microchip partner in the end. Sure, Microchip will divest some parts of Silicon Storage's business that don't fit with its expertise, but the gains should outweigh any difficulties with those divestitures. With Silicon Storage under its belt, Microchip gets closer to the big-boys division of semiconductors where Texas Instruments (NYSE: TXN) and Analog Devices (NYSE: ADI) frolic.
How much higher should Microchip be prepared to stretch for Silicon Storage, you think? The deal still seems good to me even if the company is forced to divvy out a bit more cash, but share your thoughts in the comments below.
