Wednesday, September 10, 2008

Ire at IR

On the surface it seemed to make sense. On August 15 Vishay made an unsolicited offer of $1.6 billion to acquire International Rectifier, a venerable company whose discrete power-management IC product lines would complement Vishay’s. IR had fallen on hard times, their stock had tanked, and Vishay apparently saw this as an acquisition opportunity. IR, in turn, just saw it as opportunistic and rejected the offer out of hand. As Richard J. Dahl, IR’s Chairman of the Board, put it in his response, “Your proposal is inadequate, opportunistic and not in the best interests of International Rectifier and its shareholders.”

Not being one to give up easily, on September 9 Vishay increased its offer slightly to $1.7 billion and announced its intention to nominate three candidates to IR’s board. This is reminiscent of Carl Icahn’s move on Yahoo’s board after they repeatedly rejected Microsoft’s buyout offer. Jerry Yang still has his job but no longer his job security. Whether Oleg Khaykin, IR’s CEO, winds up in the same position remains to be seen.

Vishay rightly sees an IR acquisition as complementing its product lines, though whether their cultures are complementary is unclear. What is clear is that Vishay can’t afford to leverage itself too much farther in order to top up its offer, though if it did get the support of both boards, it could raid IR’s cash kitty of $700 million to complete the financing.

An old line company with strong market share, depressed stock and a big cash stash is a tempting takeover target. IR is a proud company and wants to work its way out of the doldrums. Vishay is facing a market with shrinking liquidity, so raising the cash won’t be easy.

Stay tuned to see how this shakes out.

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