Transaction highlights include:
Commenting on the transaction, John Croteau, President and Chief Executive Officer, stated: "This transaction will accelerate and expand Macom's breakout opportunity in Enterprise and Cloud Data Centres. Macom will now be able to provide all the requisite semiconductor content for optical networks - analogue, photonic and PHY - from the switch to fiber for long haul, metro, access, backhaul and Data Centre. AppliedMicro's 100G to 400G single-lambda PAM4 platform should perfectly complement Macom's leadership in analog and photonic components for Data Centres.
"Notably, the IEEE recently recommended the adoption of AppliedMicro's single lambda PAM4 solution to be an industry standard for enterprise and Data Centre connectivity, positioning this technology as the solution of choice going forward. Additionally, AppliedMicro's Connectivity business aligns well with Macom's differentiated, high-growth business model, offering non-GAAP gross margins well in excess of Macom's long term target operating model, long product life cycles, and sticky customer relationships."
"AppliedMicro also provides value-added technologies including SerDes, high speed analog-to-digital and digital-to-analogue converters with industry-leading engineering competencies and long product lifecycles. Importantly, we expect that this transaction will establish Macom with an incumbent position supplying strategic components and enterprise and Cloud Data Centre customers."
Macom intends to divest AppliedMicro's well-positioned Compute business within 100 days from closing the transaction, as the business does not strategically align with Macom's long-term focus. AppliedMicro has been exploring strategic options for the Compute business and there is known strategic interest among several potential buyers and investors. Macom will continue to support Compute customers and partners during this transition.
"This is an exciting day for AppliedMicro, and we are pleased to be joining forces with Macom. The transaction affirms the value that our employees have created and provides a strong path forward for our Connectivity business while delivering AppliedMicro stockholders a robust premium", stated Paramesh Gopi, President and CEO, AppliedMicro. "This transaction will create an industry powerhouse with the scale, deep customer relationships, innovative technology, and enabling products that will help deliver explosive growth in Enterprise and Cloud Data Centres. In addition, this agreement provides a promising path forward for the Compute business, which is in the process of bringing AppliedMicro's highly-competitive third-generation X-Gene processor to market. X-Gene is well-positioned to address the large opportunity for mainstream server processors with its proven high performance cores, scalable interconnect and high per socket memory capabilities."
Macom intends to commence a tender offer to purchase each outstanding common share of AppliedMicro for approximately $8.36 per share, consisting of $3.25 in cash and 0.1089 Macom shares per share of AppliedMicro. MACOM will assume certain equity awards held by AppliedMicro employees. The transaction value is approximately $770 million in diluted equity value, or approximately $688 million net of AppliedMicro's cash position of approximately $82 million as of September 30, 2016. The transaction is expected to be accretive to Macom's non-GAAP gross margin, non-GAAP operating margin and non-GAAP EPS in fiscal year 2017, excluding the Compute business. AppliedMicro stockholders are expected to own approximately 15% of the combined company on a pro forma basis. Macom expects to pay the cash portion of the acquisition price from cash on hand. The boards of directors of both companies have approved the transaction, which is subject to customary closing conditions and regulatory approvals. Macom currently expects the transaction to close in the first calendar quarter of 2017.
Evercore is acting as exclusive financial advisor and Ropes & Gray LLP is serving as legal counsel to Macom.
Morgan Stanley & Co. LLC is acting as exclusive financial advisor and Pillsbury Winthrop Shaw Pittman LLP is serving as legal counsel to AppliedMicro. The board of directors of AppliedMicro received a fairness opinion from Morgan Stanley & Co. LLC and Needham & Company, LLC.