The text of the letter that was sent to Atmel’s Board of Directors last night follows:
October 1, 2008
| Board of Directors |
| Atmel Corporation |
| 2325 Orchard Parkway |
| San Jose, CA 95131 |
Attention: Steven Laub, President and Chief Executive Officer
Dear Steven:
We appreciate your having taken the time to meet with Steve Sanghi on September 5th to discuss Microchip’s potential acquisition of Atmel. However, we were deeply disappointed to learn subsequently that the Atmel Board of Directors appears unwilling to consider a transaction at this time under any circumstances. Given your apparent refusal to engage in transaction discussions, we are writing to you to formally propose an acquisition of Atmel for $5.00 per share in cash. The acquisition would be led by Microchip and financed in part by the sale of Atmel’s nonvolatile memory and RF and automotive businesses to ON Semiconductor.
Our Offer Would Provide A Significant and Immediate Premium for Atmel Stockholders
We believe that this offer, which represents a 52.4% premium over Atmel’s closing share price on October 1, 2008, is simply too compelling not to bring to your shareholders. Although we have a preference to effect a cash transaction, should you feel your stockholders would prefer a form of consideration other than cash, we would consider including common stock as a portion of the consideration.
This offer is full and fair and would deliver to your stockholders CY2008 EBIT and CY2008 P/E multiples of 19x and 28x, respectively, based on Wall Street estimates (multiples exclude approximately $60 million of restructuring charges and approximately $25 million of stock based compensation). It offers your stockholders an extremely attractive return based on these and other relevant financial metrics, especially when weighed against the challenges in creating shareholder value that Atmel will face if it continues on a standalone basis. The transformation plan that Atmel adopted a year and a half ago in the face of a proxy contest brought by its founder is incomplete and continues to face significant execution risks and obstacles:
- Continued Burden of Lagging and Sub-scale Operating Segments – Atmel has reiterated frequently that the core tenant of its transformation plan is refocusing its resources on its microcontroller business; however, Atmel’s underperforming ASIC and Auto businesses today remain very significant within the company’s overall business. These Atmel segments are significantly below the scale that is necessary for success and they will continue to be a heavy anchor on Atmel’s future operating results.
- Considerable Execution Challenges – Although Atmel has made some progress to date in disposing of unproductive fab assets and achieved modest improvements in operating results under its previously announced plan, the likelihood and timing of successfully executing on the plan is uncertain at best. Disposal of unneeded fabs is only the first part of what has been, and will continue to be, a lengthy and difficult strategic shift for Atmel. For example, even with the changes Atmel has completed to date, the operating margin for its microcontroller business is significantly lagging industry leaders such as Microchip.
- Deteriorating Macroeconomic Environment – Even in a stable or growing economic environment, successful execution of the company’s announced plan is fraught with uncertainty. Against this background of significant execution risk, however, you confront a rapidly deteriorating U.S. and global macroeconomic environment that will magnify these risks and increase the likelihood of failure.
- Lagging Stock Price – Even with the changes Atmel has announced in connection with its current business plan and the actions it has taken to date, your stockholders have seen a 46% decline in the value of their shares in the last two years. Both the stocks of Microchip and ON Semiconductor, as well as the overall Nasdaq and SOXX indices, have performed better than Atmel ’ s during this two year period.
