SST to Be Acquired by Microchip for $284 Million in Cash

Silicon Storage Technology, Inc., a memory and non-memory products provider for high-volume applications in the digital consumer, networking, wireless communications and Internet computing markets, has entered into a definitive merger agreement with Microchip Technology, Inc., provider of microcontroller and analog semiconductors, under which Microchip will acquire all of SST’s outstanding common stock for $2.85 per share in cash.

In addition, SST announced that immediately prior to its entry into the merger agreement with Microchip it had terminated its previously announced merger agreement with Technology Resources Holdings following the expiration of the notice period granted to TRH under the TRH merger agreement.

The Microchip agreement has been approved by both companies’ Boards of Directors. SST’s Board acted upon the unanimous recommendation of its independent Strategic Committee.

"Throughout our strategic process, we have demonstrated our commitment to shareholder interests, and we are very pleased with this result," said Ronald Chwang, Chairman of the Strategic Committee. "As a result of our rigorous and comprehensive process, we are confident that the proposed merger with Microchip achieves the best transaction for all SST shareholders."

"SST’s SuperFlash technology and extensive patent portfolio are critical building blocks for advanced microcontrollers," said Steve Sanghi, President and CEO of Microchip. "This acquisition enables Microchip to gain earlier access to SST’s advanced technologies, as well as the ability to customize technology variants that can give us an advantage over competing technologies. We believe this is an attractive transaction for SST’s stockholders, as it presents a significant premium to the prior transaction and requires no external financing."

The Microchip-SST transaction, which is expected to close in the second calendar quarter of 2010, is conditioned on approval of a majority of the outstanding shares of SST common stock as well as customary closing conditions and regulatory approvals. The transaction, which will be funded with cash on hand, is not subject to financing.

Houlihan Lokey is serving as the exclusive financial advisor to the Strategic Committee of the SST Board of Directors in connection with the transaction.

Shearman & Sterling LLP is serving as legal advisor to the Strategic Committee of the SST Board of Directors in connection with the transaction.

Cooley Godward Kronish LLP is serving as legal advisor to SST in connection with the transaction.

Wilson Sonsini Goodrich & Rosati PC is serving as legal advisor to Microchip in connection with the transaction.

Comments

It's strange to see a company into a growing memory market - including flash and SSD - finishing like that. Last November, the start-up published its last financial results: for the nine month ending in September 30, 2009, revenues were down 30% at $179.5 million with a $3.3 million net loss, but the 3Q09 was relatively encouraging as the company came back to profit. It was expecting fourth quarter revenues to be between $67 million and $72 million with a net income per share between $0.00 and $0.03. But, at a time, SST was much bigger and much more profitable: sales were $490.3 million and net income of $105.7 million ... in 2001.

Recently the firm entered into a 'definitive' merger agreement to be acquired for $201 million by Technology Resources Holdings, a Prophet Equity LP-controlled entity, as well as by members of SST's management team, with the idea to get private.

But just after this announcement, already six legal firms, Barrack, Rodos & Bacine, Levi & Korsinsky, LLP, Stull, Stull & Brody and Tripp Levy PLLC, Brodsky & Smith, LLC, and Law Offices of Brian M. Felgoise, P.C. announced an investigation into this deal for about the same reasons. For example, for Tripp Levy PLLC, it concerns whether the consideration to be paid to SST shareholders is "grossly unfair, inadequate, and substantially below the fair or inherent value of SST. The investigation further concerns whether members of SST, may have breached their fiduciary duties by not acting in SST shareholders' best interests in connection with the sale process of SST." Furthermore, the SST Full Value Committee sent a letter to the board of SST urging it to immediately reconsider its decision to move forward with this acquisition.

After contacting more than 140 potential buyers, now the memory company seems to be definitively acquired at a better price, for $2.85 per share, a 7.5 pct premium.

Santa Clara, CA-based Microchip, that expects revenue of $257.5 million to $267.5 million and earnings of 34 cents to 36 cents a share for its quarter ending on December 31, 2009, has over $1 billion in cash and short-term investments.

This deal appears to be a good one for both parties, allowing $1 billion company Microchip to complement its own microcontrollers with the SST flash technology.

SST was founded in 1989 by Bing Yeh, currently executive chairman and CEO, to produce BIOS chips. But he saw mobile computing's growth potential and dedicated the $15 million raised in a 1995 IPO to developing a superior type of flash memory chip. It was called SuperFlash. The firm derives a large chunk of its revenues from licensing its SuperFlash technology to chip makers like Samsung, Motorola, NEC, Seiko-Epson and Toshiba. But for the quarter ending on September 30, 2009, licensing represents only 16% of its total revenues.