Elliott Provides Further Detail and Announces an Increase of its Ownership of Interests in the Voting Rights of Dialog Semiconductor PLC ('Dialog' or the 'Company') to 3.6% (News mit Zusatzmaterial)
Elliott Provides Further Detail and Announces an Increase of its Ownership of Interests in the Voting Rights of Dialog Semiconductor PLC ('Dialog' or the 'Company') to 3.6% (News mit Zusatzmaterial)
DGAP-News: Elliott Advisors (UK) Limited / Schlagwort(e): Stellungnahme/Fusionen & Übernahmen
2015-11-11 / 20:51
ELLIOTT PROVIDES FURTHER DETAIL AND ANNOUNCES AN INCREASE OF ITS OWNERSHIP OF INTERESTS IN THE VOTING RIGHTS OF DIALOG SEMICONDUCTOR PLC ("DIALOG" OR THE "COMPANY") TO 3.6%
- Reiterates Intention To Vote Against The Transaction
- Urges Other Dialog Members and CI Holders (collectively "Dialog Shareholders") To Do The Same
- Welcomes The Positive Feedback It Has Received From Other Dialog Shareholders Regarding Its Views On The Transaction
New York, NY - 11 November 2015
Dear Fellow Dialog Shareholders:
We are writing to you on behalf of Elliott Associates, L.P. and Elliott International, L.P. (together, "Elliott" or "we") which combined now own interests in 3.6% of the voting rights exercisable in Dialog Semiconductor PLC (XTRA: DLG) (the "Company" or "Dialog").
On 20 September 2015 Dialog announced it had entered into a binding agreement to acquire Atmel Corporation ("Atmel") for total consideration of approximately US$4.6bn (the "Transaction").
On 9 November 2015 Elliott publically released documents (the "Initial Documents") which outlined in detail the many reasons we believe that the Transaction's consummation would be value destructive for Dialog Shareholders. The Initial Documents and this letter can be found at www.VoteAgainstAtmel.com.
Elliott is issuing this letter to provide further detail and clarity to its fellow Dialog Shareholders regarding its views on the Transaction and to urge them once again to VOTE AGAINST the Transaction.
Elliott's Investment Approach
Elliott has a track record of being a successful active and long-term investor across industries and geographies in its 38 year history. Elliott's objection to the Transaction is based on our view that the consummation of the acquisition will be value destructive to Dialog Shareholders over the short, medium and long term. Our views have been corroborated publically by independent proxy advisory firms and independent equity research analysts. Since the publication of our Initial Documents we are pleased and encouraged with the feedback we have had from our fellow Dialog Shareholders.
Should Dialog Shareholders VOTE AGAINST the Transaction then we would envisage maintaining our interests in the Company and working collaboratively with Dialog to enhance shareholder value. We believe an appropriate first step would be the formation of a special committee of the board to examine potential strategic opportunities available to the Company. We will be Dialog Shareholders for as long as we think the Company is trading at a discount to its fundamental value.
Elliott is a hedge fund which prides itself on consistent positive returns and low volatility. In order to achieve such a return profile our investment strategy involves engaging in activities designed to hedge ourselves against moves in the broader equity, credit, interest rate and currency markets. Our approach to investing in Dialog is consistent with that investment strategy. As such, and as previously disclosed, Elliott holds a long position in Dialog against which it has short positions in a number of related semiconductor companies (including Atmel) and a semiconductor index.
Curious Assertion of Shareholder Support
Dialog has stated that it is encouraged by the level of support it has received from its shareholders. We find this curious given that:
- On 29 September, only nine days after announcing the Transaction, Dialog announced that it had amended its merger agreement with Atmel to reduce the level of Dialog Shareholder support required to approve the Transaction from the 75% vote that would have been required to a simple majority;
- Dialog's share price declined by 26% and its market capitalisation by US$1.1bn from the day prior to the announcement of the Transaction until immediately prior to the publication of Independent Shareholder Services ("ISS") recommendation that Dialog Shareholders VOTE AGAINST the Transaction; and
- Since ISS, Glass Lewis and Elliott have published their opposition to the Transaction the Dialog share price has risen by 19%. It is evident to us that a number of Dialog Shareholders were concerned with the Transaction and voted with their feet - we encourage the remaining concerned Dialog Shareholders to VOTE AGAINST this Transaction at the general meeting to be held on 19 November 2015.
Premia Analysis
It is conventional when announcing mergers and acquisitions to cite the premium of the offer price relative to the target's share price immediately preceding the announcement of the transaction. This premium is designed to capture the incremental value that an acquirer is willing to pay for control over and above the value ascribed by the market to the standalone prospects of the target. Citing a premium to a target's share price which has considerable bid speculation already priced in is meaningless.
We believe that since the announcement on 6 May 2015 of the Atmel CEO's intention to retire the share price of Atmel has been significantly influenced by bid speculation and that it was already pricing in a significant bid premium before the Transaction was announced. From 6 May 2015 to 18 September 2015 Atmel's share price outperformed its 10-K Peers (1) by 10% despite analyst forecast 2016 earnings per share declining by 23% - this implies a 32% 2016 P/E outperformance over the same period.
- "CEO transition likely spurs hopes of a take-out" (2)
- "Atmel (ATML) is rebounding today as the planned retirement of the chip maker's CEO fuels buyout hopes" (3)
- "We are Neutral on the stock as our cautious view on 2015 fundamentals is balanced by the potential for M&A". "Going into 2H15 and 2016, we believe the following factors will drive the stock.2) Whether Atmel could be acquired by a larger company looking to expand into IoT, especially given the ongoing leadership transition and the company's challenges with achieving scale over the past cycle (we assume a 30% M&A weight in our price target)" (4)
We believe that had there been no speculation regarding a potential transaction Atmel's share price would have been approximately $5.4 per share immediately prior to the announcement of the Transaction - thus implying a 92% premium being agreed by Dialog. Please refer to the presentation at www.VoteAgainstAtmel.com for more detail regarding this calculation.
Debt Levels
As outlined in the Initial Documents one of our concerns with the Transaction is the high level of pro forma leverage when combined with the still high level of customer concentration. Dialog has cited examples of other transactions in the semiconductor industry that have used debt financing as a funding source. In the table below we compare the net leverage of the Transaction to the deals most recently announced or completed by the companies cited by Dialog (5):
PF Net Debt / Top PF Customer LTM EBITDA as % of PF Sales PF Dialog (Atmel) 3.0x 42.3% PF Avago (Broadcom) 2.9x 12.4% PF LAM Research (KLA-Tencor) 1.4x 17.5% PF Intel (Altera) 0.6x 25.1% PF Texas Instruments (National Semi) 0.6x 5.5%
As can be seen these companies do not have the same combination of leverage and customer concentration risk as Dialog will have if the Transaction is allowed to go ahead.
Put another way, Dialog on a standalone basis appears to have determined that its optimal capital structure given its business profile (including its customer concentration) was a net cash position (as at 2 October 2015) equal to 1.3x 2015 EBITDA. We disagree with this conclusion, however if one were to assume this is still the appropriate capital structure for the Dialog business within the pro forma Company - this would imply leverage of 6x against the Atmel business. We think there would be no contention that this is excessive.
Superior Uses of the Company's Capital
We reiterate our recommendation that if Dialog Shareholders VOTE AGAINST the Transaction that the Dialog board should form a special committee to examine strategic options available to the Company.
We are supportive of the Company's efforts to diversify but this strategic aim should be carried out with a view to creating shareholder value - not destroying it. Diversification should not be pursued at any cost - shareholders always have the alternative to diversify themselves by rebalancing their portfolio without paying huge control premia and exposing themselves to excessive risk. If a special committee is unable to find targets that appropriately balance value creation with transaction risk then they should examine alternative options to drive shareholder returns.
Evidently only one of these alternative options is to return capital to Dialog Shareholders. We view the Company's securities as an attractive investment opportunity especially at the currently depressed price - we presume the Company shares that view. A moderate share repurchase programme (e.g. levering up to 1x net debt / EBITDA) would be twice as accretive as the Transaction and would not expose shareholders to any of the risks of integration or excessive leverage. Additionally, the Company would likely be able to repay that leverage in a much shorter timeframe than the proposed repayment profile of the Transaction leverage.
We also note with interest the speculation (6) that should the Transaction fail to be consummated that Dialog could itself be a takeover target. We believe that the special committee of the board should, as part of its review, assess if there are credible buyers of Dialog at prices which reflect its full value.
Context for Dialog's Medium Term Targets
Dialog has published medium term targets for the combined company. Below we have compared the 2018 targets issued by Dialog (excluding the announced $150m of cost synergies) to consensus estimates for 2015-2017 for the pro forma company (also excluding synergies).
$m 2015E* 2016E* 2017E* 2018E** PF Dialog Sales 2,604 2,802 3,063 4,150 % growth 7.6% 9.3% 35.5%
$m 2015E* 2016E* 2017E* 2018E** PF Dialog Op. Profit 446 518 572 845 % growth 16.2% 10.5% 47.7%
* Market consensus PF estimates
** Mid-range of Dialog management PF guidance
The Company's medium term targets either imply very high sales and operating profit growth in 2018 or significantly higher annual sales and operating profit growth from 2015-2018 than consensus currently expects for 2015-2017. Even these consensus expectations above must be critically assessed given the fact that historically consensus has been far too optimistic about the standalone prospects of Atmel's profits - predicting on average, 12 months in advance, that earnings per share would be more than 80% higher than they eventually were for the last three financial years. However, if these higher growth figures are emanating from revenue synergies then we would request that the Company releases full details of their assumptions.
We hope our fellow Dialog Shareholders have found this additional information useful and we urge them to VOTE AGAINST the Transaction.
Yours faithfully,
Elliott Management Corporation
(1) Atmel 10‐K peers comprise: Synaptics Inc., NXP Semiconductors NV, Microchip Technology Inc., Silicon Laboratories Inc., Samsung Electronics Co Ltd., Intel Corp., Freescale Semiconductor Ltd., Texas Instruments Inc., ON Semiconductor Corp., STMicroelectronics NV, Renesas Electronics Corp., Infineon Technologies AG and Cypress Semiconductor Corp. (2) Barclays Atmel equity research (07-May-15)
(3) Market Talk, Patrick Sheridan, WSJ (07-May-15) (4) Goldman Sachs Atmel equity research (07-May-15) (5) Source: Bloomberg and company reports
(6) Kepler Cheuvreux Dialog equity research (10-Nov-15)
Contacts
Stephen Spruiell
Elliott Management Corporation
Tel: +1 212 478 2017
Email: sspruiell@elliottmgmt.com
Tobias Eberle
Charles Barker Corporate Communications
Tel: +49 69 79 40 90 24
Email: tobias.eberle@charlesbarker.de
Boudicca Proxy Consultants
UK Freephone: 0808 101 3464
German Freephone: 0800 186 0246
Email: DialogEGM@boudiccaproxy.com
About Elliott Management Corporation
Elliott Management Corporation manages two multi-strategy hedge funds which combined have more than US$27 billion of assets under management as at 1 October 2015. Its flagship fund, Elliott Associates, L.P., was founded in 1977, making it one of the oldest hedge funds under continuous management. The Elliott funds' investors include pension plans, sovereign wealth funds, endowments, foundations, funds-of-funds, high net worth individuals and families, and employees of the firm.
Disclosure of Potential Conflicts of Interest
Elliott intends to vote its interests in the Company held at the record date for the General Meeting, being 12.00 noon GMT (1.00 p.m. (CET)) on 17 November 2015, against the proposed resolution.
Elliott is neither affiliated with Dialog nor Atmel. However, as at the date of this document, Elliott holds a long position in Dialog against which it has short positions in a number of related semiconductor companies (including Atmel) and a semiconductor index.
Elliott acquired interests in the securities of the Company based on its belief that such securities, when purchased, were undervalued and represented an attractive investment opportunity. Depending upon overall market conditions, other investment opportunities available to Elliott, and the availability of securities of the Company at prices that would make the purchase or sale of such securities desirable, Elliott may seek to increase or decrease its long position in the Company. The foregoing sentences apply mutatis mutandis to Elliott's aforementioned short positions.
Important Information
This document sets out the views of Elliott Management Corporation, Elliott Associates, L.P. and Elliott International, L.P. (collectively, "Elliott") and their respective affiliates, concerning the proposed acquisition of Atmel Corporation by Dialog Semiconductor plc ("Dialog") (the "Transaction").
This document does not constitute a financial promotion of any kind by Elliott or any affiliate, and the receipt of this document in no way renders you a client of Elliott or any affiliate. The information contained in this document should not be construed as investment or tax advice, nor should it be construed as an invitation to purchase or sell any of your shares or CIs in Dialog. If you are in any doubt as to the action you should take, you should seek advice from an appropriately qualified independent financial or other adviser.
The information contained in this document (which may include price or other data) is for illustrative purposes only and may not be comprehensive or up to date. In preparing this document, Elliott has relied upon and assumed, without independent verification, the accuracy, reliability and completeness of all information available from public sources. No responsibility is accepted and no representations, undertakings or warranties are made or given, in either case expressly or impliedly, by Elliott or any affiliate as to the reliability, accuracy, timeliness, completeness or fitness for a particular purpose of information contained in this document or as to the reasonableness of any assumptions on which any of the same is based. Additionally, neither Elliott nor any affiliate accepts any direct or consequential liability for any errors in or reliance upon the contents of this document. Neither Elliott nor any affiliate will be responsible for updating any information contained within this document and opinions and information contained herein are subject to change without notice. Certain figures included in this document have been subject to rounding adjustments.
The release, publication or distribution of this document in jurisdictions other than the United Kingdom and Germany may be restricted under the laws of those jurisdictions and therefore persons into whose possession this document comes should inform themselves about and observe any such restrictions. Failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction.
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Zusatzmaterial zur Meldung:
Dokument: http://n.equitystory.com/c/fncls.ssp?u=PJNFYMGAHI Dokumenttitel: Elliott DLG Follow-up Letter (PDF Download)
2015-11-11 Veröffentlichung einer Corporate News/Finanznachricht, übermittelt durch DGAP - ein Service der EQS Group AG. Für den Inhalt der Mitteilung ist der Emittent / Herausgeber verantwortlich.
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