UK microchip designer Imagination Technologies (IMG) has recommended a 182p per share takeover to investors. The sale, to Chinese state-backed private equity firm Canyon Bridge, values Imagination at about £550m, so a rough 47% premium to the share price when the company effectively put itself up for sale on 21 June.
Imagination has also agreed to the separate sale of its MIPS arm to US venture capitalist Tallwood for $65m cash, or a little more than £48m at current exchange rates. This is a clever move designed to neatly sidestep US security concerns that might emerge from effective Chinese government ownership of advanced technology.
US POLITICAL HOOPS
A sale of a US or European technology company to a Chinese-owned entity is becoming increasingly difficult.
The Trump administration recently ruled out a takeover of US chips tech firm Lattice Semiconductor, also by Canyon Bridge.
MIPS produces central processing unit (CPU) designs, effectively the brains that run computers and smart devices.
The PowerVR graphics bit on which Imagination built its reputation, and its Ensigma connectivity technology, are far less politically sensitive.
‘The deal is not expected to require CFIUS approval in the US,’ predict analysts at Liberum. They concede that there is an outside chance that UK or EU governments could oppose the deal, but ‘we believe it is unlikely given the state of the business, the thorough sale process that it has gone through where all options have been explored, and the lack of government objection to other recent sales, such as Sepura to a Chinese entity.’
Imagination shares jumped 29% on Monday, perhaps a hint that the market feels reasonably sure that the deals will all get done. That leaves the stock at 165.75p, a modest discount to the takeover offer.
GETTING AN APPLE DEAL DONE
But close enough that some investors may feel that it is worth selling in the market now rather than running the limited risk that the takeover falls apart. We would recommend waiting and holding.
Imagination remains at loggerheads with Apple after the US tech giant said it would be ditching the UK company’s technology in iPhones from 2018. Some sort of settlement is expected and Apple may feel it is better to get a deal ironed out now rather than face dealing with Canyon and its Beijing backers.
‘If Apple were to settle with Imagination prior to the conclusion of the sale to Canyon Bridge, Imagination would return to shareholders 50% of the amount of the settlement in excess of the value that Canyon Bridge has attributed to the Apple settlement in arriving at the 182p valuation,’ Liberum’s analysts point out.
