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Conexant to Buy GlobespanVirata for $864 Million

Some job cuts are expected at the combined company, which plans to move its headquarters from Orange County.

November 04, 2003|Terril Yue Jones and James S. Granelli | Times Staff Writers

Chip maker Conexant Systems Inc. said Monday that it would acquire GlobespanVirata Inc. in an $864-million deal and move the headquarters of the combined company from Newport Beach to New Jersey.

The new company, which would keep the Conexant name, would provide chips for cable, digital subscriber line and dial-up modems as well as satellite set-top boxes, game consoles and wireless local-area networks. Executives project annual revenue of $1.2 billion and a combined workforce of about 2,400.

Some job cuts are likely, spokeswoman Gwen Carlson said.

Although the fate of Conexant's 600 workers in Newport Beach was unclear Monday, the decision to relocate to Red Bank, N.J., rattled some in Orange County. In the 1990s, fast-growing tech companies such as Conexant and Broadcom Inc. formed the foundation of what local boosters called the Tech Coast.

"It is a significant loss of a major company in the technology hardware sector," said Anil Puri, dean of the Cal State Fullerton College of Business and Economics. The sector makes up 13% of Orange County's employment -- more than double the national figure of 6%.

Orange County has seen its share of marquee corporations pull up stakes, said Stan Oftelie, president of the Orange County Business Council.

Conexant itself was spun off from Rockwell International Corp. in December 1998, and the space, aerospace and defense company eventually sold other parts and moved to the Midwest.

Ford Motor Co. set up Lincoln Mercury's headquarters in Irvine to take advantage of the design talent pool in Southern California, but the automaker pulled the division back to Detroit last year.

"When a corporate headquarters moves elsewhere, the company becomes less invested in the community even though they maintain offices and jobs here," Oftelie said. "There isn't the CEO involvement."

Chief Executive Dwight W. Decker would hand over the CEO title to Globespan Chief Executive Armando Geday, who would remain in New Jersey. Decker would become chairman.

Both Decker and President F. Matthew Rhodes would stay in California along with "the vast majority of business executives," Decker said.

Decker, Geday and Rhodes know one another from having worked together at Rockwell.

Like Conexant, GlobespanVirata produces chips that go into digital subscriber line modems that allow Internet connections over telephone lines.

But GlobespanVirata also makes chips used by DSL companies in their routing facilities that can handle multiple DSL connections at a time.

"The combined company becomes a very dominant player in the DSL market, with 45% to 50% of the worldwide market," said Dushyant Desai, an analyst with investment bank C.E. Unterberg, Towbin in San Francisco.

Monday's deal "gives Conexant some critical mass in certain areas, in particular in the wireless LAN area, where they were making efforts but not much progress," said Peter Conrad, an analyst with Kopp Investment Advisors in Edina, Minn., which manages about $2.5 billion in assets and held about 8.5 million Conexant shares as of the end of September. "Globespan clearly has a lead there."

GlobespanVirata is a leader in making chips for wireless LANs, which allow personal computers to connect to one another and to the Internet, and Conexant was eager to get access to the technology.

"The combined company is now on more of an equal footing to compete with Broadcom from a product breadth point of view and a size point of view," Desai said.

The deal is expected to close by March and add to profit within six to nine months, the companies said. GlobespanVirata lost $655 million last year and $47.9 million in the first three quarters of this year.

Conexant lost $705 million in the fiscal year that ended last month and has lost $3.2 billion over the last four fiscal years.

Conexant will pay 1.198 of its shares for each share of GlobespanVirata, according to a statement from the two companies. That is about $864 million, or $6.24 a share, a 2% premium for GlobespanVirata based on Monday's closing share prices.

Conexant shares fell 63 cents, or 10.8%, to $5.21. GlobespanVirata fell 4 cents, or 0.6%, to $6.11, below the $6.24 acquisition price under the deal's terms. Both stocks trade on Nasdaq.

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