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Chipmaker Spansion Inc. said its $368 million purchase of longtime partner and Israeli flash memory developer Saifun Semiconductors Ltd. will help it speed development and licensing of new chips to address the changing needs of the cell phone industry. "The industry's capacity requirements are getting bigger," Bertrand Cambou, CEO of Sunnyvale, Calif.-based Spansion said in an interview after the deal was announced on Monday. Most flash memory providers today use a technology known as "Floating Gate," but that technology will be phased out over the next 12 months to 18 months in favor of more powerful "MirrorBit" technology, Cambou said. Saifun's intellectual property will complement Spansion's MirrorBit products, and the deal will double the buyer's design engineering staff, he added, making the company more competitive in developing flash memory technology for the cell-phone industry. Under terms of the deal, Spansion will pay 0.7429 of one of its shares and about $5.05 in cash for each Saifun common share, valuing the Israeli target at $368 million. Counting Saifun's cash reserves, the deal is valued at $135 million. The offer values each share in Saifun, which is listed on the Nasdaq, at $11.26, or an 8.5% premium to the company's closing share price on Friday. However, the takeout price is only about 30% of the stock's record high of almost $38 in January 2006 and about half of the $23.50 per share the company traded in going public in November 2005. Saifun has been struggling since last October, when it announced that Qimonda AG, a subsidiary of German chip giant Infineon Technologies AG, would cut production of memory products using Saifun technology. Saifun shares immediately plunged, since Qimonda had accounted for 57% of the company's revenue in 2005. In the first quarter of 2007, Saifun's net income fell to $3.3 million, or 10 cents a share, from $10.0 million, or 31 cents a share, a year earlier. Spansion has also struggled to generate a profit. In fiscal 2006 its revenues grew to $2.6 million from $2 million in the prior year, but it reported a net loss of $147.8 million, compared with a $304.1 million loss in the prior year. Throughout fiscal 2007 the company has continued to show quarterly net losses and sequential revenue declines, while its stock has hovered near the low end of its 52-week range of $7.86 to $17.94. After the deal was announced, Spansion's shares fell 4.3%, or 36 cents, to $8. Still, some analysts said the Saifun purchase could help Spansion solidify its position in the flash memory market. Over the summer, Morgan Stanley analyst Aaron Husock said in a research report that Spansion's fortunes could vary significantly depending on its future prospects in storage. At the time of that July report, Husock said the stock could move as low as $5 or as high as $19 depending on the success of its efforts to expand its position in the data storage market. Spansion received financial advice from Douglas Brengal, John Jinishian and Ben Koch of Citigroup Global Markets Inc., while O'Melveny & Myers LLP's Michael Kennedy, Michael Dorf, Margaret Ikeya, Robert Fisher, Robert Rizzi and Jeffrey Walbridge in the U.S. and Yigal Arnon & Co. in Israel provided counsel. Saifun got financial advice from Lehman Brothers Inc., while its U.S. lawyers were Bruce Mann, Michael O'Bryan, Robert Cudd and Paul Borden of Morrison & Foerster LLP and Israeli counsel was Eitan-Mehulal Law Group. - Peter Moreira contributed to this report.  Deal Video
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