It's Merger Monday as Microsemi Corporation joins the fray with a bid to acquire chipmaker PMC-Sierra Inc (see below). Those animal spirits aren't rubbing off on the broad market, however, with the Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) down 0.12% and 0.08%, respectively, at 12 p.m. EDT.
A week ago, Dell Inc proposed the largest technology M&A transaction of all time, with a $67 billion offer for EMC Corporation. Animal spirits beget animal spirits, and today, Microsemi announced an unsolicited offer to acquire PMC-Sierra, which values the chipmaker's equity at $2.4 billion for an enterprise value of $2.2 billion (i.e., net of PMC's net cash position).
In doing so, it is seeking to disrupt the acquisition offer Skyworks Solutions Inc agreed to with PMC-Sierra, which was announced two weeks ago.
The offers are not equivalent. Skyworks put forward an all-cash offer worth $10.50 per share. Microsemi is offering $8.75 in cash plus 0.0736 of a Microsemi share for each PMC share. Based on last Fridays' closing price for Microsemi's stock, the offer was worth $11.50, a 50% premium to PMC's stock price prior to the announcement of Skyworks' offer.
The market appears to have made an unambiguous appraisal regarding who, of Microsemi or PMC's shareholders, are getting the better end if Microsemi were to acquire PMC-Sierra on those terms: Microsemi's stock was trading at $35.25 at 11:20 a.m. EDT, down 5.7%. That decline lowered the value of Microsemi's offer to $11.34. Meanwhile, PMC's stock was changing hands at $11.66, up 13.9% on the day.
In addition, the fact that PMC's stock is trading through the value of the offer indicates that the market expects the contest pitting Microsemi against Skyworks to produce a better offer.
That would be an excellent result for PMC-Sierra shareholders; the current price is already a nine-year high and represents 19.3 times the next 12 months' estimated earnings per share. The winning bidder, on the other hand, may end up suffering the winner's curse.