CSR strikes legal deal with Broadcom

Shares in CSR rose by more than 15 per cent after the British chipmaker settled a long-running legal wrangle with Broadcom, a US rival, for $67.5m (£43.2m).

The two groups, which have been sparring over the use of technology for global-positioning systems since 2007, on Tuesday agreed not to sue each other or any of their customers for the next five years.

As part of the agreement, CSR will pay Broadcom an initial fee of $5m plus $12.5m a year until the covenant signed by the two parties expires in January 2016.

Will Gardiner, CSR chief financial officer, said he was optimistic both groups would have moved beyond the case by the time of the deal’s expiration.

“Five years in our industry is a long time. A lot of things will have changed and moved on.”

CSR said it expected the settlement to reduce its legal fees by at least $10m annually over the next five years. The payments will not be included in the calculation of the company’s underlying profit or underlying earnings per share. Shares in CSR closed up 57p at 413p on Tuesday, as analysts said the settlement, in spite of the covenant’s expiration date, would boost consensus forecasts for CSR’s operating profit and earnings per share estimates and ease concerns over the group’s liability.

“Given the complexities of [the cases] it was hard [for customers] to understand what was happening,” Mr Gardiner said.

“For all our constituencies – our customers, our investors – [the settlement] creates more certainty and allows us to focus on our business and not litigation.”

The agreement covers a wide range of litigation, including earlier lawsuits between Global Locate, now owned by Broadcom, and SiRF Technology, acquired by CSR in 2009.

It also nullified two separate US District Court cases against SiRF products dating back to 2006, as well as orders against SiRF products by the US International Trade Commission.

Broadcom shares were flat on Tuesday.

FT Comment

Mr Gardiner said that Tuesday’s settlement would allow the British company to refocus on chipmaking, instead of litigation, and it has appeared that investors agreed with this view. The reaction of CSR’s share price on Tuesday has highlighted just how much the trail of lawsuits weighed on the share price and what a cut in legal fees will now mean for the company’s earnings. The stock trades at a forward price/earnings ratio of 12, and while that figure may now appear too expensive for some, an estimated 10 per cent upgrade to earnings per share estimates following the settlement could do much to encourage more investors to jump on board.

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