Shares in CSR fell sharply after the Cambridge-based chipmaker agreed a $679m (£418m) deal to buy Zoran, a US imaging and video technology group.
The deal is an effort on CSR’s part to diversify in the face of stiff competition from the likes of Qualcomm and Broadcom in the US.
Following the all-share deal, which is billed as a merger, CSR shareholders would hold 65 per cent of the enlarged company. Zoran shareholders would receive 1.85 ordinary shares of CSR in the form of American Depositary Shares for each Zoran share held.
CSR also said it would return up to $240m to shareholders via a share buy-back programme. But CSR shares closed down almost 10 per cent at 392p as analysts and investors said it had overpaid – the price is a 40 per cent premium to Zoran’s closing price last Friday – and questioned the merits of bringing two lossmaking companies together.
Zoran made a pre-tax loss of $33.3m in 2010, on sales of $357m. CSR made a loss of $5.7m on sales of $800m in the same period. Industry experts said the stock could have fallen further had CSR not sweetened the deal with the share buy-back.
Zoran has $261m of cash on its balance sheet, giving the company an implied enterprise value of $418m.
Ramius, a hedge fund, recently called on Zoran to replace its board, arguing that the Nasdaq-traded group needed to do more to restore growth and profitability.
CSR said that the deal with Zoran would allow it to expand into internet-enabled, location-aware products such as digital cameras and home entertainment products.
CSR was an early leader in Bluetooth chips but lost ground to bigger competitors after it failed to take advantage of the boom in demand for internet-enabled smartphones.
Joep van Beurden, chief executive, said the company had already outlined a number of measures to take market share in smartphones, and was making good progress in WiFi chips for cars.
He said the chipmaker – which last month settled a long-running legal case with Broadcom over the use of technology for GPS – would also consider other acquisitions in adjacent sectors such as audio or mobile payments once the deal was finalised.
Mr van Beurden, CSR’s chairman and its chief financial officer will all continue in their current roles in the merged company. Levy Gerzberg, co-founder and chief executive of Zoran, will join the CSR board as a non-executive director. Zoran will also propose another independent non-executive director.
The deal, which still requires shareholder and regulatory approval, is expected to save $50m in costs by 2012.
JPMorgan Cazenove and Rothschild advised CSR while Goldman Sachs acted for Zoran.