Exar Corporation (Nasdaq: EXAR) and Sipex Corporation (Nasdaq: SIPX) announced that they have entered into a definitive merger agreement to combine the two companies. Under the terms of the agreement, which was approved by the boards of directors of both companies, Sipex stockholders will receive 0.6679 of a share of Exar for each share of Sipex. Exar stockholders will own approximately 67.6% and Sipex stockholders will own approximately 32.4% of Exar after completion of the transaction, which assumes conversion to stock of outstanding Sipex debt and related warrants. Ralph Schmitt, Sipex chief executive officer, will become the chief executive officer of Exar. Interim chief executive officer and chairman, Richard L. Leza, will continue as chairman of the board of directors.
“This combination will give us the scale to be an industry force in connectivity solutions, while also allowing us to target new synergistic growth opportunities in the Power, Networking and Storage markets,” said Ralph Schmitt. “The two companies have complementary technologies which will enable the combination to pursue significant high growth opportunities. The stockholders, employees and customers will benefit from the synergies and enhanced growth that are anticipated to result from a larger, more competitive organization.”
“This combination will immediately broaden our product portfolio addressing key networking and industrial segments and accelerate penetration into high-end consumer applications” stated Mr. Schmitt. “The combined companies will be able to use Exar’s system level expertise to boost the combined companies’ strength in Power Management, Interface, Serial Communications and Network Transmissions to provide complete solutions for customer applications, driving toward higher level integration and delivering more value to our customers. The combination will also enable a stronger presence in the high growth Asian marketplace. Having strategic technical resources close to the customer base is critical to the long-term success of driving integrated mixed-signal system solutions.”
The companies expect to realize substantial cost savings as a result of the merger and anticipate Non-GAAP pretax cost savings on an annualized basis of at least $10 million by the second calendar quarter of 2008. As a result of these cost savings together with the anticipated revenue growth and gross margin expansion on Sipex products the transaction is expected to be accretive to Exar’s Non-GAAP earnings (as described below under “About Non-GAAP Financial Measures”) by the second calendar quarter of 2008.
“Our focus will be on driving a culture of accountability and execution,” explains Ralph Schmitt. “Together, the companies will have the technical ability and talent to have leading product solutions. Our strengthened sales, marketing and applications team will enable us to more effectively address our focus markets. We also expect to benefit from the combination of each company’s well aligned, industry-leading channel partners.”
“Exar and Sipex share a rich heritage of innovation in the mixed-signal and analog space,” said Richard L. Leza. “By joining forces, we expect the combined scale to enable us to extend our franchises in our product segments, realize significant synergies and better serve the needs of our collective customers, stockholders and employees. Under Ralph’s leadership, Sipex has made significant progress in improving the Company’s operating performance. Additionally, given our broader scope, scale and strong balance sheet, we intend to accelerate our strategy to explore additional acquisitions in the higher margin, mixed signal product space.”
About the Transaction
Under the terms of the agreement, the transaction is expected to be tax-free to the stockholders of both companies for U.S. federal income tax purposes. The transaction has been structured as a stock-for-stock reverse triangular merger whereby a wholly owned subsidiary of Exar will merge with and into Sipex, with Sipex surviving the merger as a wholly-owned subsidiary of Exar. The transaction is subject to the approval of stockholders from both companies as well as customary closing conditions and regulatory approvals. The companies expect the transaction to close by the third calendar quarter of 2007. Unless either party receives a Superior Proposal (as defined in the merger agreement) and the merger agreement is terminated in connection with such Superior Proposal, executive officers and directors of Exar have agreed to vote approximately 1% of the outstanding Exar shares in favor of the transaction, and executive officers and directors of Sipex and Sipex’s largest stockholder have agreed to vote approximately 46% of the outstanding Sipex shares in favor of the transaction. Mr. Schmitt and two other Sipex designees will be appointed to the Exar board of directors upon the closing of the transaction.
Shares of Exar Corporation will continue to trade on the NASDAQ Global Market under the symbol “Exar.” Cowen and Company LLC and LRG Capital Group LLC acted as financial advisors and O’Melveny and Myers LLP acted as legal counsel to Exar. Piper Jaffray & Co. acted as financial advisor and Latham & Watkins LLP acted as legal counsel to Sipex.
Conference Call and Information
The companies will hold a joint conference call May 8, 2007 at 8:30 AM EST to discuss this announcement. The conference call can be monitored by dialing 1-800-874-8975 within the U.S. and 1-706-634-6560 for all other locations, conference code 21193. A telephonic replay of the May 8, 2007 conference call will be available at approximately 1:30 p.m. EST and can be accessed through May 22, 2007. The replay access numbers are 1-800-642-1687 within the U.S. and 1-706-645-9291 for all other locations, passcode 21193.
Exar Corporation designs, develops and markets high-performance, analog and mixed-signal silicon solutions for a variety of markets including networking, serial communications, and storage. Leveraging its industry-proven analog design expertise and system-level knowledge, Exar delivers to customers a wide array of technology solutions for current as well as next generation products. Exar is based in Fremont, California.
Sipex Corporation is an analog semiconductor company that addresses standard linear and application specific standard products (ASSP) for customer systems that are primarily targeted at the consumer, networking and industrial markets. The products are categorized into three synergistic areas of power management, interface and optical storage. Sipex is a global company with operations in Asia, Europe and North America. Sipex is based in Milpitas, California.