Conexant Agrees to Buy Canada's Philsar


Conexant Systems Inc., a high-speed communications chip maker that has been paying top dollar for acquisitions, said Wednesday that it has agreed to buy a Canadian company for as much as $213.8 million in stock to boost its line of wireless products.

The Newport Beach company would swap 2.685 million to 3 million shares for the stock of closely held Philsar Semiconductor Inc., depending on Conexant's closing price during a set period before the deal closes.

Both companies' boards have approved the transaction, which is expected to close in about 30 days.

Although industry analysts praised the acquisition, the deal didn't impress Wall Street. Conexant's stock fell $9.25 a share to $62 on Nasdaq.

"It was a rough day on the market overall," said Jeff Lipton, an analyst with Hambrecht & Quist. "This was a relatively small acquisition."

Philsar is the fourth deal this year for Conexant, which has been looking for companies with proven products and new technologies. Last month, Conexant completed its purchase of Maker Communications Inc., a semiconductor manufacturer. In January, it bought Microcosm Communications Ltd. and Oak Technology Inc.'s wireless broadband business in Britain.

The Maker acquisition was valued at nearly $1 billion in stock at the time it was announced. The Oak Technology deal was pegged at $25 million in a combination of cash and stock, and Microcosm was an all-stock buy valued at about $128 million.

The Philsar acquisition follows a series of high-priced deals in the networking industry, almost all of them fueled by the acquiring company's highflying stock. The price of a company used to be determined as a multiple of its earnings or revenue. But the old rules have been tossed out the window in the fast-paced world of technology companies, say analysts, and what matters most is engineering talent.

"We're getting more than 70 [radio frequency] engineers, all really great people, with this deal. I can't tell you how fantastic that is," said Mohy Abdelgany, vice president of Conexant's wireless communications division.

Like the previous deals, the Philsar acquisition is designed to expand Conexant's line of technologies. Philsar, based in Ottawa, develops semiconductors for wireless products and such emerging technology standards as Bluetooth.

Bluetooth technology uses radio links instead of wires or cables to let electronic devices such as telephones, computers and printers communicate with each other and the Internet. Bluetooth technology is becoming a hot arena and pushing phone companies to expand their wireless services to provide Internet access and e-commerce capabilities.

Conexant hopes to incorporate Philsar's technology in its line of wireless and computer networking chips, officials said.

"It's an excellent opportunity to match our design experience with Conexant's manufacturing strength and strong brand," said Antoine Paquin, Philsar's president. Paquin said his 3-year-old company, with 75 employees, was looking for partners when acquisition talks began six weeks ago.

Conexant expects the acquisition to add about $50 million in annual sales beginning in midsummer next year, officials said. Conexant had sales of $1.44 billion last year.

Some industry insiders questioned whether the deal would affect Philsar's existing work with Conexant rival Mitel Corp. Philsar and Mitel, an Ontario maker of semiconductors and telephone equipment, had been gaining attention recently because of their work in Bluetooth wireless systems.

Abdelgany said that the deal won't change that relationship and that Philsar will continue to work with Mitel on Bluetooth technology.

Dow Jones was used in compiling this report.

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