CSR’s Proposed Zoran Buy Capped Year of Talks, Proxy Shows

CSR Plc’s proposed $679 million acquisition of Zoran capped more than a year of discussions between the companies that started as potential collaboration in GPS, Wi-Fi and digital camera processors, CSR said in a proxy filed with the SEC.

CSR’s bid to buy Zoran in February came after Zoran’s board decided the company needed bigger scale to compete in the semiconductor industry and sought to fend off a proxy battle being waged by dissident shareholder Ramius. The proxy battle has since slowed in the wake of a proposed sale that’s expected to close in Q2. The proposed deal carries an $18 million break up fee, Zoran said. As part of the acquisition, CSR has proposed buying back up to $240 million of its shares in the 12 months following the closing, likely delivering “greater long-term value” for Zoran shareholders, Zoran said.

Zoran’s board’s choice of CSR as a buyer came after a year in which talks shifted from a collaboration to outright purchase and as one potential rival acquirer dropped plans because it wasn’t familiar with the digital TV business, Zoran said. Zoran’s financial advisor Goldman Sachs contacted seven potential large cap suitors in January, but five weren’t interested and one only wanted to buy the company for its engineers, Zoran said. Zoran’s ties to CSR date to 2008, when CEO Levy Gerzberg met with Jon Hudson, CSR senior vice president for PC automotive and consumer strategic business units, about combining CSR’s ultrawideband and Zoran’s digital camera processor technologies, Zoran said.

Talks between CSR and Zoran appeared to pick up speed in June 2010 when Gerzberg met with CSR CEO Joep van Beurden to discuss product mix and scale of the combined companies. Discussions slowed as Zoran acquired Microtune in November, but resumed when CSR sent Dec. 1 a formal indication of interest in buying the company, Zoran said. Having struggled with financial losses for two fiscal years, Zoran’s board met in December to review a strategic plan that included dropping its DTV processor business. Zoran later salvaged the DTV business, cutting back instead in DVD, where it slashed staff 70 percent. It has since gained design wins in DTV with two top-tier suppliers (CED Feb 8 p6). CSR, which began as a supplier of Bluetooth chips, has branched into other segments, including GPS with the acquisition of Sirf Technologies.

Under terms of the sale, Gerzberg and Senior Vice President Isaac Shenberg are eligible for $2.9 million and $1.2 million in severance payments, respectively, if they are terminated within 18 months of the close of the sale, Zoran said. As of Dec. 31, Zoran had 1,500 employees, including 380 in a 109,700-square-foot R&D facility in Haifa, Israel. Zoran’s revenue in the fiscal year ended Dec. 31 fell to $357.3 million from $380 million a year earlier as its net loss grew to $47.6 million from $32.9 million. Among Zoran’s restructuring efforts in 2010 was the closing of an office in Sweden where it had 10 employees, the company has said.