Microchip raises bid for Silicon Storage

BANGALORE, INDIA:  Semiconductor company Microchip Technology Inc raised its offer for flash chip maker Silicon Storage Technology for the second time in a month, topping another offer made by a third party.

Silicon Storage shares fell more than 5 percent Monday as investors flagged the bidding theatrics ongoing since November last year and on fears that other bidders might lose interest.

Microchip's $3.05 per share offer is higher by 5 cents from its earlier offer, but at a 6 percent discount to Silicon Storage's closing price of $3.25 on Friday.

"My guess is people don't want the drama. We don't like this whole back and forth motion, because at some point in time, both parties might drop off -- there might not be a deal," said Harsh Kumar, analyst at Morgan Keegan & Co.

In November 2009, Silicon Storage agreed to a $2.10 per share buyout by private equity firm Technology Resource Holdings, controlled by Prophet Equity LP.

However, in early February, Microchip countered the bid with a $2.85 a share offer. Silicon dumped Technology Resource Holdings and signed a deal with Microchip.

Three weeks later, Microchip and Silicon amended their agreement with an increased offer of $3 a share, in response to a bid from an unnamed private equity firm.

A potential deal would give Microchip access to Silicon Storage's flash chip technology and patent portfolio, both key building blocks for advanced microcontrollers.

"SSTI needs to go away to one of these parties; take the money and go home, because the bids are not coming in bigger increments. When you start doing things like this you run the risk of driving away the bidders," Kumar said.

Silicon Storage's chips are used in a wide array of consumer electronics products such as PCs, digital still cameras and MP3 players and Microchip and many of its competitors use Silicon's technology.

Silicon's customers include Apple, Cisco, Dell and IBM.

Microchip also said prior to its potential takeover of Silicon Storage, it would buy 19.1 million shares of the company at $3.05 per share, giving it a 19.9 percent stake in the company.

If Microchip's acquisition of Silicon is not consummated, Microchip will not use its voting rights to block a superior proposal and the profits on its transaction will be limited, it said.

Microchip said it would have an option to sell its shares back to Silicon at $3.05 a share.

Shares of Silicon Storage were trading down 4 percent at $3.12 on Nasdaq, while those of Microchip were down 15 cents at $27.11 in afternoon trade Monday on Nasdaq.