US video chip specialist Zoran says it has entered into a definitive agreement to acquire Microtune, a US silicon tuner designer. The deal is a cash transaction at $2.92 a share and will value the company at $166 million, but because Microtune is sitting on a pile of cash, that falls to $84 million for the company, plus $82 of cash it has in the bank.
The boards of both companies have already given their approval and the deal will close after Microtune shareholder approval and regulatory clearance, which will happen during the fourth quarter and the deal will be accretive immediately.
Microtune makes silicon tuners for cable set tops, cable modems, digital TV and automotive systems. The combined company says it will benefit from technology integration and multiple cross-selling opportunities. In our view Zoran has been overdue for acquisitions, to give it more scale and it needs to do perhaps two or three more deals of this kind.
Part of the overall Zoran plan is to focus more on set tops and the booming market for home entertainment and that meant it was clearly going to need a tuner supplier to enter that market, so rather than become one of Microtune’s biggest customers, it thought it made more sense to buy the company.
It will take Zoran into cable set tops for the first time that we can remember, although this is at a time when the cable market in the US is at its most competitive, though there is plenty of growth outside the US, especially in DOCSIS modems.
Part of this acquisition is aimed at the digital TV market which is transitioning from Can Tuners to silicon tuners, with the potential being every one of the 200 million or so TV sets shipped each year and this is set to become a $500 million global market.
“This strategic acquisition will enhance our position in the core markets we serve and expand our worldwide presence, improving Zoran’s ability to serve our customers,” said Dr. Levy Gerzberg, president and chief executive officer of Zoran.
Microtune is understood to have actively explored strategic alternatives overt the past few months, probably concerned with scale and sales reach.
Microtune has been involved in most waves of tuner innovation over the past five years or so, not always successfully, having made a run at the both the DVB-H market and China’s Digital TV standard DMB-T/H, but it is well known for DTT and cable markets, and used to supply the bulk of tuners in Arris’s cable modems, before a recent shift to MaxLinear.