NEW YORK (AP) -- Shares of Zoran Corp. surged 15 percent on Tuesday after British chip maker CSR PLC said it will buy Zoran Corp. for $679 million in stock in a bid to diversify its revenue and make more products that can wirelessly stream digital media files.
THE SPARK: CSR said Sunday it will pay Zoran shareholders 1.85 American depositary shares -- worth $13.03 as of Friday, Feb. 18 -- for every common share of Zoran held. The price represents a nearly 40 percent premium to Zoran's closing stock price of $9.32 on Friday, the last trading day before the announcement.
After assuming the $261 million in cash on Zoran's books, the deal has a net cost to CSR of about $418 million. CSR said it also is buying back up to $240 million of its shares so that the deal won't dilute current shareholders' stakes as dramatically. The purchase is expected to result in $50 million in cost savings by the end of 2011 and boost CSR's 2012 earnings per share by double-digits.
The transaction is expected to close in the second quarter, pending antitrust clearance and approval from CSR and Zoran shareholders. Zoran shareholders will own 35 percent of CSR stock after the deal is completed.
CSR CEO Joep van Beurden will lead the combined company. The CSR board will continue to be chaired by Ron Mackintosh and Will Gardiner will continue as CFO. Dr. Levy Gerzberg, Zoran's co-founder, president and CEO, will assume a non-executive seat on the company's board of directors. Zoran will also propose one additional independent non-executive director to join the CSR board.
If either company terminates the deal, they have agreed to pay $12.2 million to the other party. If Zoran terminates the agreement to accept a better all-cash bid, it will have to pay an $18 million fee.
THE BACKDROP: Zoran, based in Sunnyvale, Calif., makes video chips used inside Cisco Systems Inc.'s popular line of Flip pocket camcorders, among other products. CSR, already known for making audio components found in phones, cameras and other consumer electronics, will use Zoran's technology to make Internet-connected phones, digital cameras and home entertainment gear that can wirelessly stream multimedia content, such as digital music and photos.
THE ANALYSIS: Wedbush analyst Betsy Van Hees upgraded Zoran shares to "Neutral" from "Underperform" and lifted her price target to $13 from $7.50 after the surprise announcement.
Van Hees noted that Zoran has been facing multiple challenges over the past several months such as market share loss in digital TV and DVD, an expensive and distracting proxy fight with shareholder Ramius, ongoing restructuring efforts, and the integration of Microtune. Given that these issues have been ongoing for several months, and the big premium of CSR's offer, that any emergence of another bidder is "highly unlikely."
Collins Stewart analyst John Vinh agreed that additional bids aren't expected. He anticipates that deal approval will put an end to the company's proxy battle with Ramius.
THE STOCK: Shares of Sunnyvale, Calif.-based Zoran soared $1.42, or 15.2 percent, to close at $10.74 on Tuesday on more than six times average daily volume.
THE SPARK: CSR said Sunday it will pay Zoran shareholders 1.85 American depositary shares -- worth $13.03 as of Friday, Feb. 18 -- for every common share of Zoran held. The price represents a nearly 40 percent premium to Zoran's closing stock price of $9.32 on Friday, the last trading day before the announcement.
After assuming the $261 million in cash on Zoran's books, the deal has a net cost to CSR of about $418 million. CSR said it also is buying back up to $240 million of its shares so that the deal won't dilute current shareholders' stakes as dramatically. The purchase is expected to result in $50 million in cost savings by the end of 2011 and boost CSR's 2012 earnings per share by double-digits.
The transaction is expected to close in the second quarter, pending antitrust clearance and approval from CSR and Zoran shareholders. Zoran shareholders will own 35 percent of CSR stock after the deal is completed.
CSR CEO Joep van Beurden will lead the combined company. The CSR board will continue to be chaired by Ron Mackintosh and Will Gardiner will continue as CFO. Dr. Levy Gerzberg, Zoran's co-founder, president and CEO, will assume a non-executive seat on the company's board of directors. Zoran will also propose one additional independent non-executive director to join the CSR board.
If either company terminates the deal, they have agreed to pay $12.2 million to the other party. If Zoran terminates the agreement to accept a better all-cash bid, it will have to pay an $18 million fee.
THE BACKDROP: Zoran, based in Sunnyvale, Calif., makes video chips used inside Cisco Systems Inc.'s popular line of Flip pocket camcorders, among other products. CSR, already known for making audio components found in phones, cameras and other consumer electronics, will use Zoran's technology to make Internet-connected phones, digital cameras and home entertainment gear that can wirelessly stream multimedia content, such as digital music and photos.
THE ANALYSIS: Wedbush analyst Betsy Van Hees upgraded Zoran shares to "Neutral" from "Underperform" and lifted her price target to $13 from $7.50 after the surprise announcement.
Van Hees noted that Zoran has been facing multiple challenges over the past several months such as market share loss in digital TV and DVD, an expensive and distracting proxy fight with shareholder Ramius, ongoing restructuring efforts, and the integration of Microtune. Given that these issues have been ongoing for several months, and the big premium of CSR's offer, that any emergence of another bidder is "highly unlikely."
Collins Stewart analyst John Vinh agreed that additional bids aren't expected. He anticipates that deal approval will put an end to the company's proxy battle with Ramius.
THE STOCK: Shares of Sunnyvale, Calif.-based Zoran soared $1.42, or 15.2 percent, to close at $10.74 on Tuesday on more than six times average daily volume.