IXYS Makes Digital Power Play, Seeks To Acquire ZiLOG

May 18, 2008 by Jeff Shepard

IXYS Corp. announced that it has made a proposal to the ZiLOG, Inc. Board of Directors to acquire all the outstanding shares of ZiLOG common stock for per share consideration of $4.50, to be paid in cash and stock.

Below are some portions of the text of the letter that IXYS sent to ZiLOG’s Board of Directors:

"IXYS would like to enter into exclusive negotiations to acquire ZiLOG. Our cash and stock proposal represents a fair market value for the company consistent with prior proposals, recognizing the value of the company notwithstanding recent quarters of underperformance.

"It is readily apparent to us as a shareholder, as well as to your other shareholders, that ZiLOG has unperformed as an independent company. ZiLOG’s March 2008 fiscal year results did not meet analysts’ or the market’s expectations. There is growing market sentiment that although ZiLOG has invested in technologies, the company is not converting these technologies into strong sales. Recent efforts by ZiLOG to infuse new blood into its sales and marketing team have yet to meet with success. We believe it would be in the company’s best interests to enter into merger discussions with a growing, global semiconductor company.

"A merger with IXYS will offer the best opportunity for your shareholders, employees and customers, as such transaction would provide ZiLOG’s shareholders with immediate liquidity at a premium to the average six-month share price. Additionally, ZiLOG shareholders would have an ongoing equity stake in the combined company, thereby providing them with the opportunity to benefit from the significant upside potential of the combined entity.

"ZiLOG’s microcontroller semiconductor devices will complement IXYS’s IC business. We believe that we are the best strategic partner for ZiLOG, with a strong market position in which to expand ZiLOG’s product sales. Our company designs, manufactures and sells worldwide a wide range of semiconductor components and subsystems that serve the industrial, telecommunications, consumer, medical, transportation and renewable energy markets. The combined entity would also be able to provide customers with ZiLOG’s microcontroller product line, which has become increasingly important in the new era of digital power management, utilizing IXYS’s components with ZiLOG’s microcontrollers.

"IXYS intends to operate ZiLOG as a distinct business division, thereby maintaining and developing the entrepreneurial spirit that has contributed to our success to date. IXYS intends to provide customer service and technology development support, in an effort to protect ZiLOG’s customer base for the future. IXYS’s tradition of supporting and preserving acquired companies’ autonomy has been exemplified by previous acquisitions, including Clare, Inc. and others.

"As a significant shareholder of ZILOG, IXYS strongly recommends that the respective boards work cooperatively to finalize a transaction structure and to document the transaction. We believe that all necessary consents and approvals can be obtained and the transaction could close in the September quarter of 2008. In that vein, we would like to begin discussions immediately; we request a response to this letter by business close on Tuesday, May 27, 2008."

Zilog rejected a $4.50 per share offer by remote-control maker Universal Electronics Inc. in February, saying the offer was too low. Zilog stated that it had received the IXYS offer and is reviewing it. ZiLOG recently released its financial results, stating that it had narrowed its net loss to $1.9 million, or 11 cents per share, from $3.6 million, or 21 cents per share. Revenue fell 13% to $16.7 million.