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‘Synergies’ Cited

Ramius Continues Zoran Proxy Battle as Zoran Prepares for Sale

Dissident shareholder Ramius is continuing a proxy battle for control of Zoran despite Zoran’s $679 million sale agreement with CSR. Ramius promised that its proposed slate of directors will “work within the merger contract,” according to SEC documents.

Ramius’s apparent support for the sale came as it gained the backing of Institutional Shareholder Services in a campaign to replace three directors with nominees Jon Castor, Dale Fuller and Jeffrey Smith. Ramius, which owns 9.3 percent of Zoran, is asking shareholders to support replacing six incumbent directors total. Zoran’s proposed sale to CSR is expected to close in Q2 and generate $50 million in “synergies” by year-end largely through combined manufacturing at Taiwan Semiconductor Manufacturing and cuts in overlapping positions, CSR officials said. Zoran has 1,500 employees.

Ramius’s campaign to replace Zoran’s board had “nothing to do” with the proposed sale to CSR, since negotiations began long before the hedge fund started buying stock in the fall, Zoran CEO Levy Gerzberg said on a conference call. Ramius has made a “nice paper profit” on its Zoran investment, so “I don’t see why they would continue to be interested,” Gerzberg said. Ramius officials weren’t immediately available to comment.

CSR’s acquisition of Zoran would create a company with $1.2 billion in annual revenue and access to a broad portfolio of technologies including GPS, WiFi, Bluetooth, video and digital camera processing, frame rate and 2D/3D conversion and silicon TV tuners. CSR evolved rapidly in three years from a Bluetooth technology-only company through a series of purchases including of GPS chip developer Sirf Technology. With the addition of Zoran, CSR’s profile starts to resemble that of Broadcom, which sells a similar range of chips, analysts said.

In Zoran CSR inherits a loss-making company that seems ready to turn the corner, analysts have said. Zoran forecast that its TV demodulator, processor and frame rate and 2D/3D conversion will break even by Q3 on $30 million to $35 million in revenue from design wins with tier one TV manufacturers. Among these is Toshiba, which is using the SupraHD 788 multiformat decoder that supports Internet and broadcast compression standards in a line of LED-backlit LCD TVs. The SupraHD 788 is paired with Zoran’s FRC-201 frame-rate conversion chip, the technology of which Zoran gained in buying Let it Wave. Like CSR, Zoran has shifted production of its chips at TSMC to a 40-nanometer process from 80-nanometer, Gerzberg said.

The goal will be to eventually combine the companies’ technologies -- CSR gaining access to TVs and cameras and Zoran returning to cellphones. Zoran dropped its Approach 5C multimedia processor for cellphones after failing to expand its use much beyond LG Electronics’ 3G Viewty model (CED Jan 30/08 p5).

Zoran also has a strong position in digital cameras for its Coach image processors, including strong ties with Nikon, Olympus, Pentax and Cisco, which uses its chips in the Flip video recorders. Zoran’s gross margin, including Microtune, acquired in the fall, was 52.1 percent in 2010, driven largely by camera and printer ICs, for which Hewlett-Packard, Xerox and others are customers. CSR’s gross margin was 49.3 percent in 2010. Zoran is cutting its DVD-related workforce by 70 percent as it switches to “harvesting” revenue from existing products (CED Feb 7 p6). The total addressable market for the combined companies’ products will increase to $13.1 billion by 2014 from $6.9 billion last year, CSR CEO Joep van Beurden said. Van Beurden will head the combined company, and Gerzberg will be on the board, CSR said.