IoT chip-maker Silicon Labs (SLAB) was just about to acquire Z-Wave developer Sigma Designs (SIGM) for $282 million, but Sigma failed to deliver and could save SiLabs $40 million or more. The original deal had SiLabs paying $7.05 for SIGM shares, which are now trading at less than $6.
“As a result of certain initial closing conditions not being met, we are now on a path to sell only the Z-Wave business to Silicon Labs for $240 million,” said Sigma in a statement after the stock market closed Jan. 23.
That was the day Sigma was to meet the conditions of the sale … and failed. Sigma should have divested its Media Connectivity and Smart TV divisions by then, as SiLabs only wanted to buy Sigma’s Z-Wave group. By the deadline, however, the assets (and liabilities) hadn’t been dumped.
How Sigma CEO Complicated the Deal
Why didn’t Sigma just liquidate its two media divisions to get the deal done? It’s complicated. Sigma founder and CEO Thinh Q. Tran wanted to buy the groups, which complicated all transactions. Theoretically, Tran could have stalled a deal to acquire the media properties for a song at the 11th hour.
SiLabs could have moved forward with the Sigma acquisition and then divested the media groups later, but that would have been messy. Consider the ugly headlines for this IoT darling: “Silicon Labs buys Sigma, lays off 300 workers.”
READ: 10 Reasons Why Silicon Labs’ Acquisition of Sigma is Awesome for Z-Wave
On the other hand, if SiLabs did move forward, they could have picked up an unknown quantity in a Sigma company called Bretelon. Sigma acquired this mobile IoT developer in 2015 for $22 million but never brought the start-up out of stealth mode.
In the Form 8-K Sigma filed in December, the company explained: “Mobile IoT, a cellular technology for existing global LTE networks, is part of the IoT business unit along with Z-Wave. We are presently evaluating the Mobile IoT technology and will make a decision on how we treat this asset in the coming weeks.”
What Happens if SIGM Keeps Tanking?
A statement issued yesterday (below) indicates SLAB would acquire SIGM’s Z-Wave assets for $240 million, but there’s no guarantee.
What if SIGM continues to tank? Could SiLabs instead come in with a lower offer? They are not required by the acquisition agreement to buy the assets. Or could some other buyer emerge? Is a proxy battle nigh?
[*CORRECTION: CE Pro originally reported that SiLabs and other developers could just make Z-Wave silicon on their own. That is not necessarily the case. See original text and clarification below.]
Is SLAB rejoicing or lamenting this setback? It's hard to say. On the one hand, they potentially save at least $40 million … or more if they can swing a better deal post-collapse. On the other hand, it could get really messy and time-consuming, and they could very well lose out to other suitors.
Related:
Sigma Designs Opens up Z-Wave Interoperability with Public Spec, No Licenses or Fees Required
Opinion: Z-Wave’s Open API is ‘Truly an Incredible Step’
PRESS RELEASE
Sigma Designs, Inc. Announces Plan to Sell its Z-Wave Business for $240 Million
- Sale to Silicon Labs to be structured as an asset transaction per the terms of the December 7, 2017 definitive agreement
- Sale of Z-Wave business for gross proceeds of $240 million in cash
- Sigma Designs intends to initiate a plan of liquidation following the closing of the asset transaction, which plan is anticipated to include a substantial initial cash distribution to shareholders
“We conducted an extensive and thorough review process over several months, and are pleased to have achieved what we believe is a positive outcome for our shareholders,” said Thinh Tran, Chief Executive Officer of Sigma Designs, Inc. “While Sigma Designs has built a strong Z-Wave business and established itself as a leader in the home automation market, it became increasingly apparent that the significant investment needed to maintain our strong position would have been challenging against much larger competitors in a consolidating semiconductor industry.
FREMONT , Calif. – Jan. 23, 2018 – Sigma Designs, Inc. ® (NASDAQ: SIGM) today announced that due to the initial closing conditions in the previously announced definitive agreement with Silicon Labs (NASDAQ: SLAB) for the acquisition of the entirety of Sigma Designs not being satisfied, the parties will move forward with the sale of Sigma’s Z-Wave business to Silicon Labs for $240 million in an asset transaction, pursuant to the terms of the definitive agreement and contingent upon approval by Sigma Designs’ shareholders.
Contingent upon such shareholder approval, Sigma Designs expects that the asset transaction would close in either the late first or early second calendar quarter of 2018. Sigma Designs has material U.S. and international tax attributes that it believes would significantly reduce the taxes otherwise payable with respect to the asset transaction.
Sigma Designs intends to initiate a plan of liquidation following the closing of the asset transaction, which plan is currently anticipated to include a substantial initial cash distribution to shareholders. Sigma Designs intends to work with its advisors to confirm its plan of liquidation and will provide additional information to shareholders as it becomes available. The board of directors expects, subject to uncertainties inherent in the winding up of its business, to make an initial distribution following the Z-Wave asset sale and initiation of the plan of liquidation and a final liquidating distribution as promptly as practicable after payment of, or provision for, outstanding claims. No assurances can be made as to the ultimate amounts to be distributed or the timing of any distributions.
“ With the initial closing conditions for the sale of the entire company not met, our definitive agreement with Silicon Labs reverts to the asset sale of the Z-Wave business, which not only enables us to capture the value of the Z-Wave business, it also provides our shareholders certainty of value,” said Mr. Tran.
Sigma Designs is exploring alternatives to increase the available cash for distribution to shareholders through divestment of additional businesses, including its Home Connectivity business, its Mobile IoT business, remaining assets of its Smart TV and Set-top Box businesses and other assets. Sigma is currently in active conversations regarding the divestment of additional businesses and assets.
Sigma already has initiated certain actions to preserve the amount of cash available to shareholders, including a wind-down process for its Smart TV and Set-top Box business to reduce such business’ workforce from 416 to 120 employees. Sigma Designs intends to wind down or divest its remaining businesses over the next 12 months, but exact timing will depend on a variety of factors.
Deutsche Bank is serving as financial advisor to Sigma Designs.
Sigma Designs
Sigma Designs, Inc . ® (NASDAQ: SIGM) is a world leader in enabling smart home convergence. The company designs and builds semiconductor technologies for Internet of Things (IoT) smart home devices. For more information about Sigma Designs, please visit: www.sigmadesigns.com.
Z-Wave ® is a registered trademark of Sigma Designs (NASDAQ: SIGM) and its subsidiaries in the United States and other countries. z-wave.sigmadesigns.com.
Forward-Looking Statements
This announcement contains forward-looking statements (including within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended) concerningSigma Designs, Silicon Labs (“Silicon Labs”), the proposed acquisition (the “Acquisition”) by Silicon Labs of the Z-Wave business of Sigma Designs (“Sigma Designs”) and related matters. These statements include, but are not limited to, statements that address Sigma Designs’ expected future business and financial performance and statements about (i) the timing, completion and expected benefits of the Acquisition, (ii) plans, objectives and intentions with respect to future operations, including the potential implementation of a plan of liquidation and the anticipated time period in which Sigma Designs intends to wind down or divest its remaining businesses, (iii) the impact of the Acquisition on Sigma Designs’ business, (iv) the timing, potential amount and payment of cash distributions to Sigma Designs’ shareholders, (v) other information relating to the Acquisition and (vi) other statements identified by words such as “will”, “expect”, “intends”, “believe”, “anticipate”, “estimate”, “should”, “intend”, “plan”, “potential”, “predict” “project”, “aim”, and similar words, phrases or expressions. These forward-looking statements are based on current expectations and beliefs of the management of Sigma Designs, as well as assumptions made by, and information currently available to, such management, current market trends and market conditions and involve risks and uncertainties, many of which are outside the companies’ and management’s control, and which may cause actual results to differ materially from those contained in forward-looking statements. Accordingly, you should not place undue reliance on such statements.
Particular uncertainties that could materially affect future results include any risks associated with the Acquisition such as: (1) the risk that the conditions to the closing of the Acquisition are not satisfied, including the risk that required approvals from the shareholders of Sigma Designs for the Acquisition or any applicable regulatory approvals are not obtained; (2) litigation relating to the transaction and the potential liquidation plans; (3) uncertainties as to the timing of the consummation of the Acquisition and the ability of each party to consummate the Acquisition; (4) risks that the proposed Acquisition and its announcement to initiate a liquidation plan disrupt the current plans and operations of Sigma Designs; (5) the ability of Sigma Designs to retain and hire key personnel; (6) competitive responses to the proposed transaction; (7) unexpected costs, charges, liabilities or expenses resulting from the Acquisition and Sigma Designs’ plans to wind down or divest its remaining businesses; (8) potential adverse reactions or changes to business relationships resulting from the announcement, the potential liquidation plan or completion of the Acquisition; (9) risks related to the ongoing operations of Sigma Designs’ business, which may negatively impact Sigma Designs’ performance in the fourth quarter of fiscal 2018 and in future periods as well as Sigma Designs’ ability to liquidate, wind down or divest its remaining businesses, including the impact to Sigma Designs’ business due to a decrease in demand for the end products which incorporate its chipsets; an overall decrease in demand for its chipsets resulting from this announcement, the effect that product introductions and transitions, changes in product pricing or mix, and/or increases in component costs could have on Sigma Designs’ gross margins; the inventory risk associated with Sigma Designs’ need to order components in advance of customer orders; the continued availability of certain components and services essential to Sigma Designs’ business, and (10) legislative, regulatory and economic developments.
The foregoing review of important factors that could cause actual events to differ from expectations should not be construed as exhaustive and should be read in conjunction with Sigma Designs’ filings with the Securities and Exchange Commission (“SEC”), which you may obtain for free at the SEC’s website at http://www.sec.gov, and which discuss additional important risk factors that may affect their respective businesses, results of operations and financial conditions. Sigma Designs undertakes no intent or obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Sigma Designs ’ board of directors will determine, in its sole discretion and in accordance with applicable law, the timing of, the amount of, and the record dates for all distributions to be made to shareholders. The board of directors is evaluating all alternatives, but currently intends to implement a liquidation plan under which Sigma Designs would cease conducting normal business operations, except as may be required to wind up its business affairs.
Sigma Designs ’ board of directors may declare one or more additional cash distributions to its shareholders. However, the board of directors has not established a firm timetable for distributions to shareholders or for the amount of any distributions. No assurances can be made as to the ultimate amounts to be distributed or the timing of any distributions. The board of directors expects, subject to uncertainties inherent in the winding up of its business, to make an initial distribution following the initiation of a liquidation plan and a final liquidating distribution as promptly as practicable after payment of, or provision for, outstanding claims. Liquidating distributions also could be delayed if the board of directors determines that it is in Sigma Designs’ best interests and the best interests of its shareholders to effectuate the liquidation plan in an alternative manner.
Additional Information and Where to Find It
Sigma Designs intends to file a proxy statement in connection with the Acquisition. Investors and security holders of Sigma Designs are urged to read such proxy statement(s) (including any amendments or supplements thereto) and any other relevant documents in connection with the Acquisition that Sigma Designs will file with the SEC upon such documents becoming available because they will contain important information about Sigma Designs and the Acquisition. Such materials filed by Sigma Designs with the SEC may be obtained free of charge at the SEC’s website ( http://www.sec.gov) or at the Investor Relations page on Sigma Designs’ website at www.sigmadesigns.com or by writing to Sigma Designs’ Secretary at 47467 Fremont Blvd. Fremont, CA 94538 USA.
Sigma Designs and its directors and executive officers may be deemed to be participants in the solicitation of proxies from Sigma Designs’ stockholders with respect to the Acquisition. Additional information about Sigma Designs’ directors and executive officers is set forth in Sigma Designs’ proxy statement on Schedule 14A filed with the SEC on July 17, 2017 and Annual Report on Forms 10-K and 10-K/A for the fiscal year ended January 28, 2017. Information regarding their direct or indirect interests in the Acquisition will be set forth in the proxy statement and other materials to be filed with SEC.
Letter to Sigma Employees
To: All Sigma Employees
From: Elias Nader
Subject: An Update on the Sigma Designs Business
Today we announced a change in the structure of our proposed transaction with Silicon Labs, based on the definitive agreement signed in December. As a result of certain initial closing conditions not being met, we are now on a path to sell only the Z-Wave business to Silicon Labs for $240 million. Silicon Labs has an established presence and commitment to providing smart home technology and is an ideal landing spot for Z-Wave. This transaction is subject to shareholder approval and is expected to conclude in either the late first or early second calendar quarter of 2018.
The announcement additionally referred to active discussions related to the divestiture of our other businesses. Those conversations are ongoing to ensure our valued team and technologies find the right home.
Since the announcement last month, we have begun a re-sizing of our SmartTV business to be more consistent with the level of revenue we expect to recognize. After extensive conversations with our customers and partners, we have made plans and retained a core set of employees to run the business and service key customers while attempting to deliver profit and revenue. We continue to look for divestiture options that present an optimal structure and environment for our talented team.
I recognize there has been a great deal of uncertainty during the process of defining the right path forward for Sigma Designs. I remain confident the future holds even greater opportunities for us all and I appreciate the contributions each of you has made to the business, and the support you have provided through this transition period. We intend to reach out to our teams in the next few weeks to provide more detailed information about our plans moving forward.
Thank you for your commitment to keep moving forward.
Sincerely,
Elias Nader
*CORRECTION
Original copy:
There’s another possibility: Silicon Labs could just take it upon itself to develop a Z-Wave division to complement its existing Wi-Fi, Bluetooth, ZigBee and Thread portfolio.
Sigma and the Z-Wave Alliance opened up the technology over the past few years so that anyone could develop chips and software stacks based on the popular platform. SiLabs could just move forward on its own, like any other silicon developer.
Then again, if it was that worthwhile, they and other chip-makers would have developed their own solutions already.
Clarification:
While it is true that almost all elements of Z-Wave have been opened up over the past few years, there still remains proprietary technology that must be obtained from Sigma Designs to manufacture and market Z-Wave-certified products.
More information on Z-Wave's public platform is here.
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