Microsemi Corporation MSCC announced that it would divest its non-strategic component of systems and packaging business to Mercury Systems, Inc. The deal, which is subject to customary closing conditions, is expected to close during third-quarter of fiscal 2016.
The non-core business which is being divested includes embedded security, RF and microwave, and custom microelectronics businesses. Per the agreement, Microsemi would receive $300 million in cash, subject to a customary purchase price adjustment. The amount would be used to lower Microsemi’s outstanding debt associated with the recent acquisition of PMC-Sierra. In addition to the sale proceeds, the company intends to use an incremental $100 million from available cash to reduce the debt to EBITDA ratio.
In Jan 2016, Microsemi took over PMC-Sierra for $12.05 a share, which included $9.22 in cash and $2.83 as shares. Now, the company provides storage solutions for data center and cloud applications and boasts a complementary portfolio of high-value communications products.
The sale is part of Microsemi's plan to divest its non-core businesses to refocus on core areas like Internet of Things and automotive markets, adding to its expertise in timing and synchronization, weapons and contraband screening systems, power supply, and Ethernet and broadband infrastructure. The deal will also free up capital for the development of higher-value ICs and system-on-chip (SoC) offerings, enabling the business model to be more profitable.
According to James J. Peterson, the chairman and CEO of Microsemi, this sale is advantageous to Microsemi both strategically and financially. "It allows the company to intensify its focus and frees up investment capital for the ongoing development of proprietary, higher-value solutions for aerospace & defense, communications, industrial and storage end markets.”
Microsemi is a supplier of semiconductor components to defense, aerospace, industrial and communications markets. Fiscal first-quarter 2016 earnings of 58 cents matched the Zacks Consensus Estimate while revenues beat the same, driven by strong growth across all the end markets. The company’s compelling products, scope for margin expansion and decent balance sheet are the other positives.
Also, Microsemi reaffirmed its fiscal second-quarter revenue guidance of $435–$455 million and earnings per share of 62–68 cents.
Microsemi currently carries a Zacks Rank #3 (Hold). Some better-ranked players in the technology sector are Inphi Corporation IPHI MaxLinear, Inc. MXL and Semtech Corporation SMTC. All these stocks sport a Zacks Rank #1 (Strong Buy).
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