DGAP-News: Elliott Issues Public Letter to Dialog Semiconductor plc Members and CI Holders (Collectively, 'Dialog Shareholders') (News mit Zusatzmaterial)

Elliott Issues Public Letter to Dialog Semiconductor plc Members and CI Holders (Collectively, 'Dialog Shareholders') (News mit Zusatzmaterial)

DGAP-News: Elliott Advisors (UK) Limited / Schlagwort(e):

Stellungnahme/Fusionen & Übernahmen

Elliott Issues Public Letter to Dialog Semiconductor plc Members and

CI Holders (Collectively, 'Dialog Shareholders') (News mit

Zusatzmaterial)

09.11.2015 / 22:00

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ELLIOTT ISSUES PUBLIC LETTER TO DIALOG SEMICONDUCTOR PLC MEMBERS AND CI

HOLDERS (COLLECTIVELY, "DIALOG SHAREHOLDERS")

- Expresses Concerns Regarding Value Destructive Transaction

- Believes The Transaction Exposes Dialog Shareholders To Significant Risk

- Intends To Vote Against The Transaction And Urges Other Dialog

Shareholders To Do The Same

- Posts Additional Materials on www.VoteAgainstAtmel.com

New York, NY - 9 November 2015

Dear Fellow Dialog Shareholders:

We are writing to you on behalf of Elliott Associates, L.P. and Elliott

International, L.P. (together, "Elliott" or "we") which combined owns

interests in 2.9% of the voting rights exercisable in Dialog Semiconductor

PLC (XTRA: DLG) (the "Company" or "Dialog"). We have followed Dialog for a

number of years and have tremendous respect for the impressive track record

of substantial profit growth and shareholder value creation during that

time under Jalal Bagherli and his team.

However, on 20 September 2015 Dialog announced it had entered into a

binding agreement to acquire Atmel Corporation ("Atmel") for total

consideration of approximately US$4.6bn (the "Transaction") - the prospect

of this acquisition saw almost US$0.8bn of value wiped off of Dialog's

market capitalisation on that day. We believe the Transaction's

consummation has the potential to see that value destruction increase.

We intend to VOTE AGAINST this value destructive transaction at the

forthcoming Dialog Shareholder meeting to be held on 19 November 2015 (the

"General Meeting") and we urge our fellow Dialog Shareholders to seize this

opportunity to try to reclaim that lost value by also VOTING AGAINST the

resolution proposed in relation to the Transaction.

We have appointed Boudicca Proxy Consultants ("Boudicca") to help us

disseminate this letter and our message to Dialog Shareholders in advance

of the General Meeting - their contact details can be found at the end of

this letter and at www.VoteAgainstAtmel.com.

Background to Letter

The purpose of this letter and the presentation that can be found on

www.VoteAgainstAtmel.com is to detail the reasons why we believe the

Transaction is a high risk, negative return endeavour which should be

stopped. In summary we believe:

- the Company agreed to pay a 92% premium to fair value for an

underperforming asset;

- the consummation of the Transaction will destroy approximately US$500m

of value for Dialog Shareholders and expose them to excessive risk; and

- the Transaction may reduce Dialog's valuation multiple for the

foreseeable future due to reduced sales growth and EBITDA margins as

well as increased financial leverage and operating risk.

Since the Transaction was announced a number of parties have echoed our

concerns. Equity research analysts covering the Company have expressed

scepticism regarding the Transaction, its strategic merits and financial

benefits as illustrated by the quotes below:

- "We believe Dialog's move to acquire Atmel for $4.6bn is the wrong deal

at the wrong price. Dialog's desperation to reduce its dependency risk

with Apple (79% of sales) has ultimately led the company to enter an

auction process and over-pay for a tier-3 microcontroller company that

has a huge employee base (Atmel 5,100 vs Dialog at 1,500). We believe

the claimed benefits of combining power management and microcontrollers

to "win" in IoT are also over-stated"(1)

- "DLG paid a steep premium...and a rather high pre-synergy multiple,

EV/adj EBIT 2016 of 17.6x, which we attribute to bidding competition".

"The move is a big fish to swallow from a deal multiple, financial and

integration point of view"(2)

- "Atmel has particular challenges (multi-year restructuring, competitive

pressures from larger rivals), which makes the 40% bid premium a

curious one". "Bringing in 5,000 new employees introduces a lot of

operational integration risk and we think product synergies are

probably not seen until 2018+"(3)

Additionally, leading independent proxy advisory firms Institutional

Shareholder Services and Glass Lewis have both recommended that Dialog

Shareholders VOTE AGAINST the Transaction and stated:

- "The company [Dialog] appears to be paying more than a full price to

take this step [a transformational transaction to diversify its client

and product base], as evident in the price paid for Atmel, which is not

being compensated by expected synergies."(4)

- "...the proposed purchase price appears on the high side in our review

of precedent transactions, falling well above the mean and median

multiples of EBITDA and net income paid in similar industry

transactions." "Overall, we believe Dialog has an attractive

stand-alone growth story and we do not believe the board has presented

a sufficiently compelling case that the proposed transaction, at this

valuation, is in the best interests of shareholders."(5)

We believe that Dialog has implicitly acknowledged the scepticism

surrounding the Transaction by amending the approval requirement such that

only a simple majority of Dialog Shareholders voting at the General Meeting

is required to approve the Transaction. This is considerably less than the

75% threshold envisaged when the acquisition was first announced and

suggests that Dialog deliberately altered the Transaction structure to

reduce the level of shareholder support required to get the deal done.

We strongly believe that any acquisition must have a solid strategic

rationale, be value creative for Dialog Shareholders and that the level of

value creation should be carefully weighed against the associated risks. We

outline in further detail below why we believe this deal falls considerably

short against these criteria and that it is in Dialog Shareholders' best

interests to VOTE AGAINST the Transaction.

A 92% Premium to Fair Value for an Underperforming Asset

We believe Dialog agreed to pay one of the highest control premiums seen in

the semiconductor industry since the beginning of 2012 - the mean premium

over that period was 33%. The offer value of $10.42 per Atmel share implied

a 2016 P/E of 24x - which is a 77% premium to Atmel's 10-K Peers (6) the

day prior to the Transaction being announced. Atmel has historically traded

at a discount to its 10-K Peers implying that the premium paid is even

higher - as high as 92%. A high premium may be justified if an acquisition

leads to synergies which exceed that premium however, we do not believe

that is the case for this Transaction as we detail in the next section.

Additionally, high premia are sometimes paid for companies that experience

high growth rates - Atmel is not one of those companies. Its earnings per

share ("EPS") have declined by almost 60% over the last three financial

years and although they are forecast by analysts to stabilise over the next

two years Atmel has consistently underperformed analysts' earnings

expectations - with annual EPS estimates 12 months in advance being on

average 83% higher than the final result for the last three financial

years. Atmel's disappointing historical financial performance has led to

its share price underperforming the broader semiconductor industry and its

10-K Peers over all relevant time periods.(7)

Ending 5th May, 2015 1 Year 2 Years 3 Years 4 Years 5 Years

Total Annualised Shareholder Return:

Atmel (2.5%) 8.0% (0.7%) (15.5%) 6.6%

Dialog 125.7% 104.1% 36.7% 29.9% 32.8%

Average 10-K Peers 29.7% 31.3% 22.7% 10.2% 10.8%

SOX-Index 22.6% 25.7% 22.4% 13.6% 16.3%

Atmel Annualised TSR Relative to:

Dialog (128.2%) (96.2%) (37.4%) (45.4%) (26.1%)

Average 10-K Peers (32.2%) (23.3%) (23.4%) (25.8%) (4.1%)

SOX-Index (25.1%) (17.7%) (23.1%) (29.2%) (9.6%)

Quite simply we do not believe that Atmel's standalone performance or the

financial and strategic benefits of the deal justify such a significant

premium.

Approximately US$500m of Value Destruction for Dialog Shareholders

Elliott believes that Dialog agreed to pay approximately a US$1.9bn premium

to Atmel shareholders and in return is receiving synergies worth US$1.4bn

(using management's estimate of $150m of annual synergies) - implying

almost US$500m of value destruction to Dialog Shareholders, before

transaction costs. This represents 12% of Dialog's market capitalisation

prior to the announcement of the Transaction, however, on the day the

Transaction was announced the Company's market capitalisation declined by

19% or approximately US$0.8bn.

Elliott believes this is due to a combination of factors including

investors being sceptical regarding the level of synergies forecast by the

Company as well as a valuation multiple de-rating due to the increased risk

profile of the combined company (see next section). We think Dialog

Shareholders are right to be concerned about these issues.

Dialog and Atmel have little product or customer overlap and different

routes to market for their main products. It is therefore unclear to us

where all of the Company's estimated US$150m of genuine cost synergies

emanate from and management is yet to communicate a sufficiently detailed

and credible plan.

For illustrative purposes if the realised synergies were 25% lower than

expected this would lead to approximately an additional US$200m of value

destruction for Dialog Shareholders.

Increased Risk Profile for Dialog Shareholders

We believe the Transaction exposes Dialog Shareholders to unacceptable

levels of risk - especially when weighed against the absence of value

creation. The risks Elliott sees in this acquisition are twofold: (i)

excessive financial leverage; and (ii) a large complex integration process.

Dialog currently has an unleveraged balance sheet, with approximately

US$470m of net cash as at 2 October 2015. Pro forma for the Transaction the

Company has guided it will have net debt / LTM EBITDA of 3x - one of the

highest leverage multiples in the sector. Whilst we view the Company's

existing capital structure as inefficient - becoming one of the most

levered companies in the sector whilst still having a high level of

customer concentration is risky and could compound all the other problems

with the Transaction.

The reasons underlying our scepticism regarding the potential synergies in

this acquisition also lead us to worry about the potential disruptive

effects of integrating two very different businesses. Not only is there

limited customer, product and distribution channel overlap, Dialog is a

fabless company with only approximately 1,400 employees whereas Atmel

operates a fab and employs over 5,200 people. These characteristics would

make integration risky for an acquisition of any size - let alone one which

more than doubles the revenues of the Company.

Until the Company has paid down a significant portion of its acquisition

debt, Atmel has been successfully integrated and synergies realised we

would expect Dialog to trade at a discount to its historical P/E multiple.

Since the Transaction was announced we have already seen evidence to that

effect.

Mediocre Strategic Rationale

It appears to us that the main rationale for the Transaction is to

diversify the Company's revenue base rather than to meaningfully improve

its competitive positioning with customers. Whilst we are supportive of a

strategy of diversification we feel that the financial benefits of a

transaction of this nature must be clear to be justifiable. Any control

premium paid must be significantly outweighed by the financial benefits of

the transaction - or a Dialog Shareholder would be better off buying shares

in the target and paying no control premium. The Transaction does not meet

these criteria.

Dilutive to Top Line Growth and Pre-Synergy EBITDA Margins

Dialog is a high sales growth, high EBITDA margin company and its valuation

has reflected that. Atmel on the other hand has had negative to marginally

positive historical growth rates and one of the lowest EBITDA margins in

its 10-K Peer group. The table below shows the sales growth and EBITDA

margin dilution Dialog would have experienced over the last three years if

Atmel had been part of the Company.

2012 2013 2014

Annual Sales Growth:

Atmel (20.6%) (3.2%) 1.9%

Dialog 46.7% 16.5% 28.3%

Pro Forma Dialog (5.3%) 3.7% 12.3%

EBITDA Margin

Atmel 11.3% 10.6% 12.4%

Dialog 17.4% 19.3% 23.3%

Pro Forma Dialog 13.5% 14.0% 17.3%

We would expect this dilution to weigh on the valuation multiple of Dialog

shares for the foreseeable future, further compounding the already

lacklustre financial returns of this acquisition.

There are Superior Uses of Capital than the Transaction

We believe that the Company has excess capital on its balance sheet which

should be used to generate value for shareholders. Should the Transaction

not be consummated Elliott recommends that Dialog establish a committee of

the board to examine all capital allocation options open to the Company.

Value creative transactions which fulfil the Company's strategic aims would

be our preference - however, if Dialog cannot find attractive acquisition

targets at appropriate prices then the alternative is to return capital to

its shareholders - not to pursue overpriced transactions.

The Transaction is expected to be accretive to underlying EPS in 2017 with

analysts estimating approximately 10% accretion. We believe a return of

capital could be 20% accretive whilst retaining a more moderate level of

leverage (1x) and without exposing Dialog Shareholders to undue risk. For

illustrative purposes taking Dialog's leverage up to 3x, in line with the

Transaction, could increase EPS by almost 60% if the Company pursued a

share buyback.

Next Steps

The Transaction requires the approval of the simple majority of Dialog

Shareholders voting at the General Meeting - historical turnouts at Dialog

general meetings have been as low as 30% over the last five years - your

vote will make a difference.

By now you should have received a notice of the General Meeting of Dialog

(the "Notice"). You will find enclosed with the Notice, a reply form (the

"Reply Form"). Elliott urges you to complete the Reply Form to VOTE AGAINST

the resolution and send it to address provided by the Company as soon as

possible but in any event no later than 12 noon GMT on 17 November 2015.

What to do if you have already submitted a Reply Form and wish to change

your mind and vote against the resolution?

If you have already submitted a Reply Form to vote for the resolution but

have changed your mind, you are able to revoke that form and vote against

the resolution. In this case, you will need to contact Martina Zawadzki by

email at dialog@art-of-conference.de and request a fresh Reply Form. You

should then complete this form and then address a letter to Dialog stating

that you revoke your previous Reply Form and that the enclosed Reply Form

is submitted in its place. This letter and the completed fresh Reply Form

should be sent to:

Dialog Semiconductor Plc

c/o Art of Conference - Martina Zawadzki

Böblinger Str. 26

D-70178 Stuttgart

Germany

Fax +49 (0) 711 4709-713

Emali: dialog@art-of-conference.de

Conclusion

We hope we have demonstrated why we believe the Transaction is not in the

best interest of Dialog Shareholders and that the best course of action for

the Company is for Dialog Shareholders to VOTE AGAINST this acquisition.

Yours faithfully,

Elliott Management Corporation

(1) Deutsche Bank Dialog equity research (22-Sep-15)

(2) Commerzbank Dialog equity research (21-Sep-15)

(3) Stifel Dialog equity research (19-Oct-15)

(4) Institutional Shareholder Services Special Situations Research

(30-Oct-15) (consent has not been granted for the use of this quote)

(5) Glass Lewis Proxy Paper (6-Nov-15)

(6) Atmel 10-K peers comprise: Synaptics Inc., NXP Semiconductors NV,

Microchip Technology Inc., Silicon Laboratories Inc., Samsung Electronics

Co Ltd., Intel Corp., Freescale Semiconductor Ltd., Texas Instruments Inc.,

ON Semiconductor Corp., STMicroelectronics NV, Renesas Electronics Corp.,

Infineon Technologies AG and Cypress Semiconductor Corp.

(7) 5 Years total annualised shareholder return for Average 10-K Peers

excludes Freescale Semiconductor and NXP Semiconductors given they were

private companies during this period. 4 Years total excludes Freescale

Semiconductor for the same reason.

Contacts

Stephen Spruiell Boudicca Proxy Consultants

Elliott Management Corporation UK Freephone: 0808 101 3464

Tel: +1 212 478 2017 German Freephone: 0800 186 0246

Email: sspruiell@elliottmgmt.com Email: DialogEGM@boudiccaproxy.com

About Elliott Management Corporation

Elliott Management Corporation manages two multi-strategy hedge funds which

combined have more than US$27 billion of assets under management as at 1

October 2015. Its flagship fund, Elliott Associates, L.P., was founded in

1977, making it one of the oldest hedge funds under continuous management.

The Elliott funds' investors include pension plans, sovereign wealth funds,

endowments, foundations, funds-of-funds, high net worth individuals and

families, and employees of the firm.

Disclosure of Potential Conflicts of Interest

Elliott intends to vote its interests in the Company held at the record

date for the General Meeting, being 12.00 noon GMT (1.00 p.m. (CET)) on 17

November 2015, against the proposed resolution.

Elliott is neither affiliated with Dialog nor Atmel. However, as at the

date of this document, Elliott holds a long position in Dialog against

which it has short positions in a number of related semiconductor companies

(including Atmel) and a semiconductor index.

Elliott acquired interests in the securities of the Company based on its

belief that such securities, when purchased, were undervalued and

represented an attractive investment opportunity. Depending upon overall

market conditions, other investment opportunities available to Elliott, and

the availability of securities of the Company at prices that would make the

purchase or sale of such securities desirable, Elliott may seek to increase

or decrease its long position in the Company. The foregoing sentences apply

mutatis mutandis to Elliott's aforementioned short positions.

Important Information

This document sets out the views of Elliott Management Corporation, Elliott

Associates, L.P. and Elliott International, L.P. (collectively, "Elliott")

and their respective affiliates, concerning the proposed acquisition of

Atmel Corporation by Dialog Semiconductor plc ("Dialog") (the

"Transaction").

This document does not constitute a financial promotion of any kind by

Elliott or any affiliate, and the receipt of this document in no way

renders you a client of Elliott or any affiliate. The information contained

in this document should not be construed as investment or tax advice, nor

should it be construed as an invitation to purchase or sell any of your

shares or CIs in Dialog. If you are in any doubt as to the action you

should take, you should seek advice from an appropriately qualified

independent financial or other adviser.

The information contained in this document (which may include price or

other data) is for illustrative purposes only and may not be comprehensive

or up to date. In preparing this document, Elliott has relied upon and

assumed, without independent verification, the accuracy, reliability and

completeness of all information available from public sources. No

responsibility is accepted and no representations, undertakings or

warranties are made or given, in either case expressly or impliedly, by

Elliott or any affiliate as to the reliability, accuracy, timeliness,

completeness or fitness for a particular purpose of information contained

in this document or as to the reasonableness of any assumptions on which

any of the same is based. Additionally, neither Elliott nor any affiliate

accepts any direct or consequential liability for any errors in or reliance

upon the contents of this document. Neither Elliott nor any affiliate will

be responsible for updating any information contained within this document

and opinions and information contained herein are subject to change without

notice. Certain figures included in this document have been subject to

rounding adjustments.

The release, publication or distribution of this document in jurisdictions

other than the United Kingdom and Germany may be restricted under the laws

of those jurisdictions and therefore persons into whose possession this

document comes should inform themselves about and observe any such

restrictions. Failure to comply with any such restrictions may constitute a

violation of the securities laws of any such jurisdiction.

+++++

Zusatzmaterial zur Meldung:

Dokument: http://n.equitystory.com/c/fncls.ssp?u=JTRVPLNPFB

Dokumenttitel: Elliott DLG Letter (PDF Download)

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