SWKS: cha ching!!

The 8-K was filed:

On November 23, 2015, PMC-Sierra, Inc. (“PMC”) notified Skyworks Solutions, Inc. (the “Company”), that PMC had terminated the Amended and Restated Agreement and Plan of Merger (the “Amended and Restated Merger Agreement”), by and among the Company, Amherst Acquisition, Inc. and PMC to accept an acquisition proposal from Microsemi Corporation. On November 24, 2015, PMC paid the Company the $88.5 million termination fee pursuant to the Amended and Restated Merger Agreement.

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On November 24, 2015, PMC paid the Company the $88.5 million termination fee pursuant to the Amended and Restated Merger Agreement.

That’s awesome! What an easy way to make $85 million dollars. It will show up on GAAP earnings, but we’ll have to take it off the adjusted earnings as it’s not part of their ongoing business. On the other hand, 40% of it WILL get paid back to us in the form of dividends and stock buy-backs.

Best,

Saul

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I thought the happy ending of this ill-advised plan reason enough to buy some more, especially as it averaged me down a touch.

That’s awesome! What an easy way to make $85 million dollars.

If you’re going to adjust the results for this, you might also want to adjust out some expenses as well. These breakage fee arrangements are also designed to partially reimburse the company for expenses related to the potential merger. Who knows how much money SWKS paid attorneys, bankers, and accountants during this process.

Fletch

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If you’re going to adjust the results for this, you might also want to adjust out some expenses as well. These breakage fee arrangements are also designed to partially reimburse the company for expenses related to the potential merger. Who knows how much money SWKS paid attorneys, bankers, and accountants during this process.
Fletch

Great point, Fletch, maybe they’ll tell us. Companies sometimes say “We had $XXX of extra legal and accounting expenses associated with the XYZ acquisition”. That would be nice, wouldn’t it?

Saul

"That’s awesome! What an easy way to make $85 million dollars.

If you’re going to adjust the results for this, you might also want to adjust out some expenses as well. These breakage fee arrangements are also designed to partially reimburse the company for expenses related to the potential merger. Who knows how much money SWKS paid attorneys, bankers, and accountants during this process."

In addition, the potential significant income taxes need to be considered

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Yes, thankfully this is not part of SWKS business model. I had a lot of misgivings about the merger - I wouldn’t second guess Aldrich, but I’m happy to see the discipline they exercised by refusing to get caught up in a bidding war.

As a digression, but an example of how even really big companies sometimes get caught up in a competitive gambit, read the following:

At the big aerospace firm I worked at, In the early 2000s they were “considering” introducing a “super-jumbo” plane. They had but one real competitor, a consortium of European companies. As the company I worked for ramped up their hype about the new plane, the competitor also ramped up thiers. This teat-for-tat went on for over a year until the European company committed to production. The company I worked for dropped out of the competition almost the next day.

It became evident (to me, anyway) that this had been an elaborate chess game all along. They never had any intention of building that plane. All they saw was an enormous commitment of resources with a very limited market. It was mostly the pride of the Europeans who weren’t going to be out-done by the uppity Americans that led them blindly into their crippling commitment.

The European company delivered the first aircraft of this type in 2007. It was a nightmare with 100s of post delivery repair work orders. The electrical system was completely hosed up due to design software incompatibilities between the German companies and the French companies (the software is of French origin, so the French always upgraded to the latest version on release. The Germans on the other hand saw no compelling reason to pay for an upgrade).

I haven’t kept track, but my guess is that this product is still losing money. The company I worked for tried to hit break-even with 300 deliveries. The super jumbo has booked 317 firm order (as of June or there abouts). They’ve delivered 173. I don’t know what the break even point is on this plane, but rest assured it’s way beyond 300. It’s possible that the market will reach saturation and the plane go out of production without ever breaking even - let alone contribute to earnings.

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