Pixelworks, Genesis to Combine in Stock Swap

From Times Wire Services

Pixelworks Inc. and Genesis Microchip Inc. agreed to merge in a $600-million stock swap in a bid to expand their combined reach in the market for chips that power television screens and flat-panel displays.

The deal is structured as a reverse takeover whereby Pixelworks would issue stock to Genesis shareholders, who would in turn wind up with a majority stake in the combined company. It would be called Genesis Pixelworks.

Pixelworks would issue 2.3366 common shares, or $17.87 based on Friday's close, for each share of Genesis. That's 36% more than Genesis' Friday close. Investors in Genesis, the world's biggest flat-panel chip maker, would own 63% of the combined company.

Shares of Pixelworks fell 21%. Genesis investors oppose the agreement because many bought the stock expecting it to rise past $20 and don't believe the deal would boost sales, CE Unterberg Towbin analyst Kalpesh Kapadia said.

"It's not going to be one plus one equals two, it's going to be less than two," said Kapadia, who rates Genesis shares "market perform."

Pixelworks shares fell $1.62 to $6.03 on Nasdaq. The 21% tumble is the company's second worst since it first sold shares publicly in 2000. Genesis rose 45 cents, or 3.4%, to $13.62, also on Nasdaq.

The companies hope that combining will let them develop digital TV chips more cheaply and confront rising competition, said Jeff Bouchard, Pixelworks' chief financial officer.

Sales of flat liquid-crystal displays will be more than $20 billion this year, beating those of traditional picture-tube models for the first time, market researcher IDC said last week.

Genesis, with headquarters in Alviso, Calif., has had losses in its most recent four quarters. Pixelworks, based in Tualatin, Ore., has been unprofitable in six of its last eight.

The companies said they had combined sales of $298 million in 2002 and $641 million in total assets that included $220 million in cash and marketable securities.

The new company, which would employ 650 workers, is expected to add to profit before some costs in its first full quarter and save $4 million a quarter, Pixelworks and Genesis said. The deal is scheduled to close in the third quarter.

Pixelworks Chief Executive Allen Alley and CFO Bouchard would keep their jobs in the new company. Genesis CEO James Donegan would be chairman. The company would be based in Alviso and would keep some operations in Tualatin.

Analysts expect the combined company's biggest opportunities to be in the development of sharper TV pictures to compete with the struggling high-definition TV market.

"That's where their competitive muscle will help because there's a half-dozen or more start-ups," said David Mentley, an analyst at ISuppli Stanford Resources.

"The ability to take DVD or high-quality satellite or high-quality digital and make it look as good as HDTV is the future," Mentley added.

Bloomberg News and Reuters were used to compile this report.

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