PMC-Sierra to Buy Quantum for $2.44 Billion
Canadian chip maker PMC-Sierra Inc. will buy Quantum Effect Devices Inc., a maker of microprocessors used in consumer electronics, in a stock swap worth $2.44 billion, the companies said Wednesday.
The deal will give PMC a strong presence in the design of high-speed networks and add a missing component to its product line: a flexible network microprocessor that can be used in complicated processing of information sent worldwide over networks.
Bob Bailey, PMC’s chief executive and chairman, said his company’s goal in buying Campbell, Calif.-based Quantum was to boost its annual revenue by $1 billion within five years.
“We expect QED to continue to drive processor performance on the vector that they’ve been on,” he said. “But in addition, we think there may be some offshoots of some very exciting product ideas that will result in some products that will be offered in the market.”
PMC, which is based in Burnaby, Canada, said the deal was not expected to reduce its earnings this year.
Investors and analysts were upbeat about the deal. Shares of PMC were up $10.56, or more than 5%, to $207 in midday trade. Quantum shares jumped $18.44, or 30%, to close at $78.94 on Nasdaq. PMC Shares rose $11.63, or 6%, to close at $208.06, also on Nasdaq.
When the deal was announced before the opening of the stock market Wednesday, it was valued at $2.3 billion, based on PMC’s closing stock price Tuesday of $196.44.
“Overall, I think it’s a very positive acquisition,” said Karl Motey, an analyst for C.E. Unterberg, Towbin. “This gets [PMC] one step closer to a complete solution. [Quantum is] a fabulous company.”
Analysts said they did not believe PMC was paying too much for Quantum. “If you can get important technology and not lose earnings, you’re doing a good job,” said Charles Boucher of Bear Stearns.
Many leading chip makers are pushing to develop high-speed communications microprocessors, including Motorola Inc., Intel Corp. and IBM Corp.
“We’re going to see in communications a sort of path that parallels the PC market, to move toward a standard process base architecture, where you can make changes in the product through software without having to customize the hardware,” Boucher said. Cisco Systems Inc., maker of routers that direct traffic over the Internet, is the largest customer of PMC and Quantum. Cisco holds a 5% stake in Quantum.
Under the terms of the acquisition agreement, each Quantum share will be swapped for 0.385 share of PMC. Those terms would value Quantum at $80.31, a 32.7% premium above its Tuesday closing price of $60.50.
Tom Riordan, Quantum’s president and chief executive, will become vice president and general manager of PMC’s new Quantum division, which will absorb Quantum’s 100 employees.
