“In our world it’s impossible to remain in place, you have to grow and develop. We did that through a number of acquisitions that helped us to grow. Granted, not as much as we wanted, but we grew significantly in the past decade, and we grew while others disappeared. The way to grow is to buy or they buy you.” Those words were spoken by Zoran Corp. (Nasdaq: ZRAN) senior VP of corporate marketing and business development Dr. Isaac Shenberg in an interview with Globes, the day after the surprising merger with UK company CSR was announced.
Zoran develops chips for consumer electronics applications and digital imaging. The company reached a merger deal with CSR in which Zoran will be acquired in an all-stock transaction at a valuation of $679 million, a 40% premium over the Nasdaq share price. CSR’s share price fell 10% following the news, which lowered the value of the deal to about $613 million, although there could still be changes upward or downward.
Shenberg is not worried by the reaction of investors in London. “Generally, after announcing a deal with a premium, the natural response of the share is to drop. I believe that in the long term it will rise”, says Shenberg.
Globes: How did you get to CSR?
Shenberg: First, based on logic combining telecommunications and Zoran’s consumer electronics components is something that has been part of our strategy for many years. We always looked at companies in the telecommunications sector. Second, the contacts with CSR began a long time before Ramius. The process is not at all connected, the early stages were long before Ramius.”
Shenberg was referring to US fund Ramius, which has reached a 9.3% stake in Zoran. Ramius has claimed that Zoran was wasting money in areas that were not profitable, including digital television. Ramius also looked to replace members of the board of directors.
Do you expect problems from investors, specifically Ramius, in authorizing the transaction?
"Ramius will apparently end their battle, because from their viewpoint they succeeded they got in at low prices and can sell at high prices. That, obviously, is assuming that Ramius is acting as a rational economic enterprise, as far as their intentions we have no information."
It appears that in recent months Zoran dealt primarily with the battle with Ramius and with talks with CSR?
"First, to correct a significant error the company was busy primarily in reorganizing and in our internal recovery plan. These are things that we do far away from the spotlights. Based on the media energy, it appeared that we dealt primarily with Ramius, but the issue of Ramius affects a small number of employees, a small amount of the time. The company’s focus was and will remain the core business, technology and customers.
"The main thing that we are working on now is to reach significant design wins, this quarter and next. That will guarantee our success going forward, and these are processes that take time and energy. That is where we are focused, and we believe that we will succeed."
Zoran operates today in a number of segments, and develops chips for, among other things, digital cameras, DVD players, and printers. According to Shenberg, the intention is to continue the current operations. “The intention is to find opportunities, to succeed more, and to be more effective in every market we are in. In the second stage to find new opportunities in the integration of the capabilities of the companies", he says.
Zoran employs over 1,000 workers. Its headquarters are in California, but it has a development center in Haifa where several hundred workers are employed. Sometimes, following mergers and acquisition, there are layoffs in order to eliminate redundancies, but Shenberg claims that currently there are no concrete plans on the issue.
Shenberg says, “At the heart of the matter, every merger story is a merger of technologies, to do more with technologies. And technologies are essentially the same engineers and serious development centers, whether in Israel, the US, England, or anywhere.”
And nonetheless, you mentioned that there will be synergies as a result of the merger?
“The synergies are part of the reason that we believe that the deal is good for investors. In our notice we spoke of an annual pace of $50 million, but a big part of the synergies comes from the fact that we are bigger. There is a general trend in the semiconductor field, that the big companies get bigger, and the small become smaller. This can lower the production costs, and contribute to much higher gross margins. The technologies are also complicated. Developing technology costs a lot of money, and a big company develops technology for a large number of components. Many of the synergies come from that, most definitely not from closing development centers.”
Have you received feedback from customers yet?
"One of the good things about the deal is that there are no conflicts, in fact the opposite. For example, in digital cameras we were the world leaders. Today, when we go to a camera customer, we can tell him that we are number one in camera processors, but we also have a portfolio of GPS and Wi-Fi, a complete solution.
"There is no doubt that our position will strengthen the customer won’t have to work with a supplier here, a supplier there. Our long term chances of survival are also better, so that we believe that the influence is positive and we can’t think of negative reactions from customers."
Published by Globes [online], Israel business news - www.globes-online.com - on February 24, 2011
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