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June 17, 2011 10:52 am

CSR cuts Zoran offer price by 30%

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CSR, the Cambridge-based chipmaker, will press ahead with the controversial acquisition of its US peer Zoran, after cutting its offer price nearly 30 per cent.

CSR decided to revise its $679m all-share offer last month after a sales warning from Zoran, which makes chips for imaging and video devices. The companies announced on Friday a new price of $484m, comprising $313m in cash and the remainder in CSR stock.

Joep van Beurden, CSR’s chief executive, said that he was convinced of the merits of the acquisition, in spite of scepticism from some investors. CSR shares fell by nearly 10 per cent after the proposed deal was announced in February.

“We needed to reconfirm the strategic viability and attractiveness of the deal ... the business was smaller than we thought,” he said. Zoran cut its revenue outlook after Cisco decided to stop producing its Flip video camera, for which Zoran was a key supplier.

However, Mr van Beurden said that the “momentous” acquisition would allow CSR to continue shedding its reliance on mobile handset makers such as Nokia and RIM, both of which have been struggling to retain market share. RIM shares fell 15 per cent after a profit warning on Thursday.

“Three years ago, this set of circumstances [at Nokia and RIM] would have been a very difficult position for us,” said Mr van Beurden, who has tried to broaden the company’s products beyond mobile phone Bluetooth chips into other fields such as GPS location devices, digital cameras and printers. “The business is now much more resilient.”

The company reassured the market by predicting second-quarter revenue of $190m-$195m, in line with its previous forecast of $185m-$200m.

CSR expected the acquisition to result in annual savings of $70m across the combined group, in which Zoran shareholders will take a 16.5 per cent stake.

Alex Jarvis, at Peel Hunt, said that most analysts remained dubious about the deal.

“If you’re a technology investor, the first market you want to get into is smartphones,” she said. “This is the wrong technology, and it looks like the wrong company. Zoran seems to be in serious decline.”

Zoran reported a net loss of $30.4m in the first quarter of this year, but some of its directors thought the CSR deal undervalued the company, according to Ms Jarvis. The deal was not unanimously accepted by Zoran’s board.

George O’Connor, at Panmure Gordon, said that CSR’s current valuation showed that investors were sceptical towards the deal, but added that this made it “one of the cheapest stocks” in its sector.

“The underlying strategic rationale was always there, and the price now makes sense for shareholders,” he said. “It’s about industrial diversification ... this is a connected world, where the smartphone is only one device.”

The shares rose 1.6 per cent to 313p.

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