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UPDATE: GigOptix Founder Issues Letter to GSI Tech Board

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Board of Directors
GSI Technology, Inc.
1213 Elko Drive
Sunnyvale, CA 94089

Attention: Lee-Lean Shu, President, Chief Executive Officer and Chairman of the Board

Dear Members of the Board:

On August 18, 2014, GigOptix presented to GSI Technology a proposal to acquire all of its outstanding shares of common stock for per share consideration of $6.50. This offer represented a 32% premium to the then share price of GSI Technology. In addition, it represented a 10% premium to the highest price at which the common shares of GSI Technology have traded since GigOptix withdrew its offer on November 14, 2014. During the period from August 18 to November 14, 2014, GSI Technology rebuked all efforts by GigOptix to engage in a direct dialogue.

In May, you announced the settlement of the Cypress Semiconductor litigation. However, it has not been lost on the market that GSI Technology incurred over $30 million in litigation expenses for which the net result was a wash to GSI Technology. This, despite setting unreasonably high expectations for your investors, such as the comment made during a May 2014 presentation at the B. Riley & Company investor conference, "[w]e put in our claim construction for damages recently. Probably not the right venue to talk about it but could be as little as few tens of millions to as high as hundreds of millions."

From an operating standpoint, we believe GSI Technology results continue to disappoint the investor community. Revenues for GSI Technology's fiscal year ended March 31, 2015 were down 8.7% from a year earlier. As opposed to what GSI Technology saw for its last fiscal year, GigOptix experienced 23% revenue growth year-over-year for the quarter ended March 31, 2015. Moreover, GigOptix' initial guidance for the 2015 fiscal year is that revenue will grow approximately 14% in 2015 over 2014.

I am writing to you again on behalf of the Board of Directors of GigOptix, Inc. to renew our proposal for a business combination of GigOptix and GSI Technology. As we did last August, we believe that our proposal continues to represent a compelling value realization event for your stockholders and that a combination would create significant synergies between our businesses. In light of the economic position of the worldwide telecommunications market and the revenues which GSI Technologies has been reporting, we believe a combination would further enhance our collective product and service offerings, allowing us to strengthen the value proposition that we provide to our customers through a wider range of companion and complementary products and more effectively challenge our respective competitors.

In light of the current set of circumstances, GigOptix believes the stockholders of GSI Technology would be well-served by its Board of Directors giving due consideration to the offer, detailed below, by entering into discussions with GigOptix.

Under our proposal, GigOptix would acquire all of the outstanding shares of GSI Technology common stock for per share consideration of $6.50 consisting of a to-be-determined mix of (i) cash to be paid by GigOptix at the closing of the combination; (ii) shares of GigOptix; and (iii) a special dividend in cash payable by GSI Technology, and conditioned upon the closing of the combination. We expect that the proposed transaction would be completed by the end of 2015. It is anticipated the cash consideration can exceed $6.00 per share.

Our proposal represents about a 26% premium above the closing price of GSI Technology's common stock of $5.14 on June 2, 2015. In addition, our offer amounts to approximately 3.5 times revenues and 4.0 times GSI Technology's enterprise value.

As we stated when we withdrew our prior proposal in November 2014, all we have ever sought is the opportunity to discuss the merits of a combination with you. Our proposal is subject to such discussions occurring and resulting in the negotiation of a definitive merger agreement, and receipt of necessary board, stockholder and regulatory approvals, as well as conducting certain limited confirmatory due diligence. We have again received a commitment letter of up to $70 million from Opus Bank to fully finance the cash portion of the consideration from GigOptix, which we would be pleased to share with you when we sit down for discussions.

In addition, because a portion of the aggregate merger consideration would consist of GigOptix common stock, we would provide GSI Technology the opportunity to conduct appropriate limited due diligence with respect to GigOptix.

We have engaged Opus Bank as our financial advisor and Crowell & Moring, LLP as legal counsel to advise us in this transaction. We, our advisors and counsel are ready to meet with you and your advisors at any time to discuss this offer and answer any questions that you or they may have about our offer.

Unless extended, the proposal shall expire on June 19, 2015. We believe this timeline provides GSI Technology's Board adequate time to consider our proposal and respond accordingly. This letter does not create or constitute any legally binding obligation, liability or commitment by us regarding the proposed transaction, and, other than any confidentiality agreement we may enter into with you, there will be no legally binding agreement between us regarding the proposed transaction unless and until a definitive merger agreement is executed by GigOptix and GSI Technology.

We believe this proposal represents a unique opportunity to create significant value for GSI Technology's stockholders and employees, and the combined company will be better positioned to provide an enhanced value proposition to customers and stockholders. We hope that you and your Board share our enthusiasm, and we look forward to a favorable reply.

Very truly yours,

Dr. Avi Katz
Founder, CEO & President
Chairman of the Board of Directors
GigOptix, Inc. (NYSE MKT: GIG)

 

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