Silicon Systems to Be Acquired by Japan’s TDK : Firm Will Pay $200 Million for Tustin Chip Maker
Silicon Systems, a Tustin-based microchip maker, has agreed to be acquired by Japan’s TDK Corp., the world’s largest manufacturer of audio and videotapes, for about $200 million.
TDK, which will pay $20 for each of Silicon Systems’ about 10 million shares outstanding, said it plans to invest an additional $200 million in the company’s operations and its research and development division. No major increase in employment is expected, however.
Silicon Systems’ Chairman Carmelo J. Santoro said the acquisition will help it become more competitive. In addition to the infusion of cash, Santoro said, Japanese ownership will enable the company to concentrate on international expansion and provide better access to Far Eastern markets, which currently account for about 25% of Silicon Systems sales.
“It means I can be more concerned with our goal of building a $1.3-billion company by 1998 rather than whether the per-share profit next quarter is going to be 21 cents or 24 cents,” Santoro added.
TDK, on the other hand, will be able to enter the semiconductor market without starting from scratch.
“We’ve been looking at semiconductors for many years. We’re finally going to be making them,” said Ken Aoshima, a vice president of TDK U.S.A., the American subsidiary of TDK Corp., whose operations include an audiotape manufacturing facility in Irvine. “We’re not going to compete with the giants right now. We’ll expand in Silicon Systems’ specialty markets,” Aoshima said.
Silicon Systems’ specialized integrated circuits are used in the computer, telecommunications and automobile industries. Its products are components in, among other things, computer hard-disk memory systems and modems, the devices that allow computers to communicate with each other.
Last year, the company bought a computer microchip manufacturing facility in Santa Cruz from AT&T; Technologies in a move that the firm said would double its production capacity.
Silicon Systems’ stock, which has gained more than 60% since March 31 when the company announced that it was negotiating a possible merger, advanced $1.75 per share Monday and closed at $19.50 in unusually heavy trading on the New York Stock Exchange. Stock in TDK closed Monday at $62.50 per share, up 25 cents, for the day on the New York Stock Exchange.
Analysts said Monday that TDK’s “very-attractive” $20-per-share offer, well above the stock’s trading price in recent months, is unlikely to be followed by competing bids. Silicon Systems’ board approved the merger following a favorable opinion from investment bankers Shearson Lehman Hutton, which was hired to assess the offer for company stockholders.
Analysts expressed concern Monday that Silicon Systems’ “small company marketing culture” and its entrepreneurial spirit might be lost when it becomes part of TDK, which for its last fiscal year had revenues that topped $3.4 billion.
Silicon Systems, founded in 1973, was a small, custom semiconductor design firm with $16 million in sales in 1982 when Santoro arrived as president.
Santoro and his key managers are widely credited with the rapid growth of the company, which earned $12.7 million and had revenue of $120.8 million for the 1988 year that ended in October. While the company is dwarfed by the largest chip makers, Silicon Systems has captured large shares, up to 75% in some instances, of some specialty markets. For instance, the company has been highly successful in making electronic components that go into the increasingly popular 3.5-inch hard-disk drives used to store computer memory.
THE COMPANIES AT A GLANCE
SILICON SYSTEMS INC. Headquarters: Tustin Fiscal 1988 revenue: $120.8 million Fiscal 1988 earnings: $12.7 million Primary products: specialized integrated circuits used in the computer, telecommunications and automobile industries Employees: 1,400 Monday’s closing stock price: $19.50, up $1.75 Chief executive: Carmelo J. Santoro TDK CORP. Headquarters: Tokyo Fiscal 1988 revenue: $3.4 billion Fiscal 1988 earnings: N/A Primary products: audio and video magnetic recording tapes Employees: 14,661 Monday’s closing stock price: $62.50, up 25 cents Chief executive: Hiroshi Sato