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Tension intensifies over Microchip, Micrel deal

Posted: 04 May 2016     Print Version  Bookmark and Share

Keywords:acquisition  dispute  semiconductor merger 

Ray Zinn, Micrel's founder and former chief executive, has been vocal in expressing his resentment towards an apparent breach in agreement regarding an acquisition made with Microchip's CEO Steve Sanghi.

Zinn thought he had a gentleman's agreement with Sanghi, who acquired his company for $839 million in August 2015. Zinn said Sanghi told him he had a great company, layoffs would be light and evenly split between the two companies. But it didn't go that way, said Zinn who called EE Times after reading a report about a severance dispute in Microchip's acquisition of Atmel.

"When he visited the company he was glowing and complimentary, saying I did a great job and had great people who deserved a pat on the back," Zinn said.

"When I tried to negotiate with him about layoffs, he assured me his people were as worried as mine and if he terminated one of my people he'd also terminate one of his," Zinn said. "When I asked if I could get that in writing, he said he couldn't do that that without filing a disclosure, but I had his word," he said.

Micrel founder

Figure 1: Founder and former chief executive of Micrel, Ray Zinn.

"After the deal was done, he flipped and said I had a terrible company with the worst people he'd ever seen, and I don't think anybody on his side got terminated," he said. "When I talked to him about it later he wrote me this nasty letter saying...some very unkind things.

"I thought because we were lean and profitable, consolidation would be at senior level. I knew I was going and the board would go. I wasn't expecting him to shut the [Micrel] fab down and lay off as many people as he did—that was a surprise.

"Verbally he made a lot of commitments that didn't materialise because I didn't have them in writing. If you didn't have it in writing and in the term sheet, he didn't have to live by it.

"I didn't even think about checking him out because he was just so nice—and that was shame on me," said Zinn, noting his company made a profit for every year but one of its 37-year history.

"He would not endorse my management book because he said I ran a lousy company," Zinn said. "I only lost about $50,000 one year—I've lost more than that in the stock market," he said.

Zinn guessed Microchip might lay off as many as half of Micrel's staff based what he has heard from former employees. "I know he will shut the fab down and that's a couple hundred people," he said.

"In the beginning, at an all hands meeting [Sanghi] told employees you either fill it or kill it," Zinn said of the Silicon Valley factory running six-inch wafers at about 35% capacity using a BCD (bipolar-CMOS-DMOS) process.

Zinn admitted the fab had "really low inventory levels compared to peers." However its equipment was fully amortized and it handled a mix of R&D and manufacturing, "so you can't run at full capacity," he said of the fab that made as much as 85% of the company's products.

"We might have gotten up to 50-55% utilisation in a few years, but it could never get back to 80-90%," Zinn said.

"Our customers were looking for lower prices and going to Asia factories like Dongbu and Grace," Zinn said. "It's hard to run a fab in Silicon Valley—one of the most expensive places in world—but we were still competitive with gross margins over 50%," he said.

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