After seeing shares surge due to a $1.5 billion takeover bid, the new managers at scandal-ridden International Rectifier Corp. have made it clear that they want to go it alone and try to turn around the struggling company.
Vishay Intertechnology, a Malvern, Pa. semiconductor maker, offered Aug. 15 to buy International Rectifier for $21.22 per share a 13-percent premium on the prior day’s closing price. However, the semiconductor maker rejected the bid two weeks later saying the proposal just didn’t cut it.
“The board of directors unanimously concluded that your proposal is inadequate, opportunistic and not in the best interests of International Rectifier and its shareholders,” said Richard J. Dahl, who was appointed chairman May 1 as part of the new guard at the El Segundo-based company. “We believe that International Rectifier’s valuation is still under the cloud of legacy issues.”
Despite a run-up of shares in International Rectifier which rose more than 20 percent immediately after the bid several investors and analysts believed the offer would not be accepted.
“The price was 0.9 times enterprise value,” said Steve Smigie, an analyst with Ft. Lauderdale, Fla.-based Raymond James & Associates Inc. “Most other comparable acquisitions were 2.5 times enterprise value. If you’re Vishay, the deal makes great sense but not if you’re International Rectifier.”
Vishay has a history of making low-ball offers for distressed companies, Smigie added. In fact, Vishay said after the deal was announced that it was prepared to beef up the bid if needed, but International Rectifier stood by its rejection.
Executives of Vishay would not comment for this article and International Rectifier made only limited statements.
International Rectifier makes semiconductors used in satellites, routers, servers and gaming consoles. It reported $1.2 billion in revenues last year, but the financials are being revised.
Japanese problems
The rejection came as a sign of the company’s renewed optimism for a turnaround. It has a new suite of senior managers following a plethora of scandals, fraud and accounting irregularities that surfaced last spring at its Japanese subsidiary.
“The company showed with this rejection that it is committed to the turnaround and isn’t going to just sell to the highest bidder,” Smigie said.
The company admitted that it failed to “maintain effective control and corporate oversight over the financial accounting and reporting of our subsidiary in Japan,” a mistake that cost the company about $117 million, according to the Aug. 1 filing. The specifics of the problems have never been made clear, but it’s clear the problems were severe.
“With the revolving door gone in senior management and with all of the scandals basically vetted, the company seems to really be ready to give it a go,” Smigie said.
On Aug. 1, International Rectifier said its delayed and much-anticipated 2008 annual shareholders meeting would be held Oct. 10 saying it was set to announce nearly two years of re-stated earnings. The company said that that announcement will signal the beginning of the company’s turnaround.
“The company is ready to move forward and put all of 2007’s problems behind them,” said Graham Robertson, a company spokesman.
Last spring, International Rectifier disclosed the accounting irregularities that subsequently led to the resignation of its then-chief executive, Alex Lidow, for unspecified reasons marking the final of three departures from the company’s executive suite last year. Chief Financial Officer Michael McGee was fired and Robert Grant, an executive vice president for global sales, resigned.
Lidow is the son of Eric Lidow, who started the company in 1947. Industry veteran Oleg Khaykin was elected Alex Lidow’s replacement on March 1.
Second Go-Around
This isn’t the first flare-up between the two companies. Two years ago, Vishay, which is a larger and more diversified electronic components maker, bought International Rectifier’s power control systems business for $290 million. Vishay later admitted that it underestimated the time and money it was going to take to separate the unit from International Rectifier and sent a request for rescission of the transaction saying it cost a lot of unexpected money.
International Rectifier rejected the proposal and said it is prepared to defend the deal if need be.
That history aside, Smigie said that choosing to reject the bid and go forward with its own turnaround puts pressure on the company that has dominated the power management microchip sector for so long. Investors will not be at all pleased if the turnaround is unsuccessful.
“You have to think that they’ve fallen behind on the tech curve due to so much of their time and resources being spent on getting rid of these scandals,” he said. “There will be some very unhappy people if the turnaround fails. But most are very optimistic that the new management team can get it done.”
