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Tension intensifies over Microchip, Micrel deal

Posted: 04 May 2016     Print Version  Bookmark and Share

Keywords:acquisition  dispute  semiconductor merger 

Micrel was to some extent a small and somewhat sheltered company. It began its life at the end of an age when employees still expected corporations would provide them lifetime employment if they did their jobs. It came to its end at a time when business plays by more rough-and-tumble rules that serve shareholders.

"Companies are bought and restructured by stronger performing companies for higher profitability—that's what business is all about," said Sanghi. "If we don't have happy investors, what happens to our business is what happened to Ray's business," he said.

"We are on the consolidating end as are Avago, NXP" and others expected to deliver hundreds of millions of dollars in savings, so "redundancies are inevitable," he said. "It's a broken company that can't deliver prosperity through strength," he added.

The good news is "some Micrel people are contributing very well," said Sanghi. "A lot of underperforming companies don't do justice to their employees, customers or investors with a long bleed of endless misery," he said.

One of Micrel's lessons is that if you want to have a specific severance package "it should be documented and approved by the board," Sanghi added.

The lack of such a deal proved a hard pill to swallow for Micrel's CEO.

MicrochipxMicrel

"Financially, I made out fine, and we had a severance package for the top executives—they came out fine—but what bothered me the most was what happened to my people, I got sick (ill?) over it," Zinn said.

Overall, the process "is brutal on the company being acquired," Zinn said. "We had Starboard activist shareholders threatening action, and the board pushed me to sell the company...I didn't have a lot of choice, I was just one of six," he said.

Incentives for board members are weighed towards selling a company, in part because in an acquisition board members typically get contracted gifts of so-called restricted stock units (RSUs) at an accelerated pace of vesting.

Board members "have a better package" than rank-and file employees. The board "gets paid for helping do the acquisition, putting together term sheets and then given RSUs that accelerate." By contrast employees typically get options to buy stock at prices that can be below market rates, he added.

Zinn pointed to a generous severance package Maxim Integrated gives all its employees, considered by some a poison pill to ward off acquisitions.

"I would have been criticised if I had put a plan in place like that—the only one I heard of using it was Maxim," Zinn said. "Knowing what I know now, that's what I would have done and I would encourage anyone to create a uniform severance package for all their people," he added.

Overall, Zinn blamed a bad economy since the 2008 downturn that kicked off an avalanche of consolidation and activist investors who "hit people during weak times when it's tough."

-Rick Merritt,
EE Times


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