Wolfson Microelectronics’ Edinburgh headquarters could be turned into a European research centre for a US rival after a £291 million swoop for the company gained the backing of management.
The firm – spun out from the University of Edinburgh in 1984 and floated on the London Stock Exchange in 2003 – looks set to succumb to a 235p-a-share offer from Texas-based Cirrus Logic.
The offer is a 75.4 per cent premium on Monday’s closing price and Cirrus chief executive Jason Rhode said he had received widespread backing from Wolfson’s shareholders. The stock last night closed up 75 per cent at 234.5p.
“It’s a pretty high premium and reflects the fact [Wolfson’s] value to us is greater than what the team can accomplish on their own,” he said. “We’ve had a pretty overwhelming indication investors will be supportive.”
Rhode said the move strengthens his firm’s core business and adds new product categories such as specialist audio microphones known as “MEMS”.
Cirrus indicated the deal would allow it to save on research intended to catch up on audio technology. Its initial plans involve using Wolfson’s Edinburgh base, where about 280 people are employed, and a smaller Newbury design centre, as European development bases.
Rhode added: “This acquisition strengthens Cirrus Logic’s core business as a leader in audio signal processing components, enhances our ability to differentiate our products with software, and adds new product categories such as MEMS microphones to our portfolio.”
Wolfson employs some 420 staff, while Cirrus has 760. Cirrus warned the merger could result in the loss of between 7-10 per cent of the combined workforce in the 12 months from acquisition, as it seeks to save about £7m a year in costs.
The US firm expects an estimated 100 job losses in sales and corporate functions, rather than the enlarged group’s factories around the world. Wolfson’s chief executive Mike Hickey and finance boss Mark Cubitt will each stay on for up to a year to manage the integration process, and will receive bonuses of £500,000 and £250,000 respectively for their work on the deal providing it goes ahead.
Despite the strong reputation enjoyed by its products, Wolfson had been hit by a fall in orders due to fierce competition and the near-collapse of major customer BlackBerry.
Shares in Wolfson – which dropped to their lowest in nearly two years in February after it posted an underlying operating loss of $4.5m (£2.7m) for the final quarter of 2013 – rocketed to within a whisker of the offer price today.
In a trading update published alongside news of the offer, Wolfson said it had made a similar first-quarter loss of $4.5m and revenues had plunged to £28.8m, from £48.1m a year ago.
But Dan Ridsdale, analyst at Edison Investment Research, said Cirrus was getting a good deal. He said: “While [Wolfson’s] Q1 results were weak as expected, Cirrus is buying this business at a trading nadir and we believe a recovery in business, primarily at Samsung, should drive a strong recovery in H2.”