Bonds Offer Good Buy Into Microsemi

One of the better stock plays among Orange County companies may be a bond investment.

Last week, Microsemi Corp. sold $35 million in debentures that are convertible to shares of the Santa Ana-based semiconductor products maker. Paying 5 7/8% annual interest, the debentures are convertible into common stock at $13.55 a share.

That’s well over Friday’s closing price in over-the-counter trading of $11.50 a share. But with their interest income, the debentures could represent a lucrative way to take a stake in the company.

In the past 90 days alone, Microsemi shares have climbed in price from about $6.50 a share to Friday’s new 52-week high.

The shares have been swept along in the big recent move in the major semiconductor stocks, but Microsemi also is rising on the merits of its own strong sales and earnings growth, says Jeff Kilpatrick, president of Newport Securities Corp.


The company was profitable in each of the past five years--a time when many semiconductor makers were suffering losses. Microsemi’s net income has risen steadily from $356,000 in 1982--7 cents a share--to $5.5 million, or 64 cents a share, in 1986.

Kilpatrick estimates that Microsemi’s existing business operations could produce earnings of 80 cents a share in 1987.

Where Will Money Go?

The big question: What will Microsemi do with the more than $40 million it has from last week’s offering and other cash reserves?

Most likely it will make an acquisition in a related business line.

Since 1978, the company has acquired six semiconductor operations to solidify its strength in selected specialty markets.

Microsemi concentrates in the relatively low-tech “discrete diode” sector of the semiconductor industry. Though it’s not one of the fastest-growing segments of the business, it has proven to be one of the more stable and profitable.

An acquisition in a similar business line could send earnings even higher than Kilpatrick’s estimate.

Or, he added, an acquisition of a money-losing company could set Microsemi back.

“Microsemi’s management isn’t afraid to take a step backward and buy a company with problems if it has good, long-run potential,” said Kilpatrick.

And thus far it has had a good track record of making a go of operations that others gave up on.

“It’s like the story of the tortoise and the hare,” said Kilpatrick.

Comprehensive Care Corp. of Irvine said last week that it plans to take its wholly owned RehabCare Corp. subsidiary public with a stock offering expected to take place in late May.

B. Lee Karns, CompCare’s chairman, said some of the shares will be sold by CompCare, with the rest issued by RehabCare. Karns refused to say how much the company hopes to raise or to identify the lead underwriter in the offering.

A former Wall Street high-flyer, CompCare has recently become a victim of the nationwide drive to cut health care costs. CompCare’s net earnings during the six months ended Nov. 30 fell 23% to $7.2 million from $9.4 million a year earlier.