Buyout battles are always fun -- especially if you own shares of the target company.
This week, digital media chip designer Zoran (Nasdaq: ZRAN) got a competing bid to trump an ongoing hostile takeover bid. British wireless chip shop CSR (OTC BB: CSRXF.PK) and Zoran announced a merger deal that values Zoran at about $680 million in the form of 1.85 CSR depositary shares for each Zoran share. On top of that, CSR promises to return "up to $240 million to shareholders" through a buyback campaign on the open market.
All things considered, the deal structure would amount to about 65% CSR stock and 35% cash, indirectly applied. CSR plans to issue shares on the Nasdaq market following the merger and expects the deal to add to CSR's earnings in 2012.
Zoran's largest shareholder, Ramius, which is a division of Cowen Group (Nasdaq: COWN), is none too happy about this turn of events. The group currently owns about 9.3% of Zoran and is working to replace six of the company's seven directors with a slate of its own. The CSR deal undervalues Zoran and looks like "a graceful exit for a poorly performing Board with a 20-year average tenure instead of a transaction that maximizes value for shareholders," if you ask Ramius. Because the new deal popped up within weeks of the shareholder meeting that would decide the fate of Ramius' director candidates, it "appears to be a last ditch effort by the Board to insulate itself from shareholder action seeking new representation."
Strong words indeed. However, Zoran and CSR have complementary product portfolios and the new offer gives shareholders an immediate payoff that Ramius can't match -- the firm's noble but less sure-fire intention is not to buy anything but to replace the leadership and start changing the business model. More specifically, Ramius suggests that Zoran should drop the digital TV market and leave it to competitors like Trident Microsystems (Nasdaq: TRID), which is stealing market share from Zoran anyhow. The printer and camera chips show a lot more promise.
As bidding wars go, this one's a bit different: Ramius won't raise its offer because there is no acquisition on the table to begin with. Its intentions were purely related to creating a new slate of directors that would follow its vision for Zoran.
So Zoran's shareholders have a clear-cut choice: accept CSR's bid and convert most of their holdings into that company's stock, or kick out the board and start afresh. In a battle between guaranteed payoffs and a nearly certain short-term pain period as the market absorbs the turmoil and uncertainty of a whole new board, the CSR bid looks like a winner.
Is it the right choice? Perhaps not, but nobody said that business decisions have to make long-term sense.
Interested in more info on this brewing battle? Add Zoran to your watchlist.
