IDTI/RNECF: Renesas Expands Auto Capabilities in Semiconductor Deal Requiring CFIUS Approval

Relevant Documents:
Announcement
Transaction Presentation
Merger Agreement

Event Driven Takeaways
 

• Late yesterday evening, Sept. 10, Renesas announced that it would acquire Integrated Device Technology, or IDT, in a cash transaction valued at $6.7 billion.
• The transaction requires CFIUS’ approval. Japan-based Renesas is familiar with the CFIUS process; the company’s recent transaction with U.S.-based Intersil which closed in February 2017 also required the committee’s approval.
• The companies generally offer complementary products, however there may be discrete product overlaps, such as in the market for automotive system on a chip (SoC).

Late yesterday evening, Renesas announced that it would acquire Integrated Device Technology, or IDT, in an all-cash transaction valued at $6.7 billion.

The transaction requires approval by CFIUS. Japan-based Renesas is familiar with the CFIUS process; the company’s recent transaction with U.S.-based Intersil also required the committee’s approval, which it received on Feb. 21, 2017. That acquisition was announced on Sept. 13, 2016 and closed on Feb. 24, 2017. In that transaction’s definitive proxy statement, it was disclosed that CFIUS’ approval would be needed in light of the “classified nature of certain Intersil products.”

Japanese companies have been subject to CFIUS scrutiny, such as Softbank’s acquisitions of Fortress, Boston Dynamics and Sprint. CFIUS is likely to scrutinize the transaction for direct and third-party relationships, particularly between Renesas and Chinese entities, related to the latter’s access to critical technologies post-acquisition.

From an antitrust perspective, the companies generally offer complementary products, however there may be discrete product overlaps, such as in the market for automotive system on a chip (SoC). Competitors in this market include NXP, Infineon, Nvidia and Intel.
 
More broadly, in its most recent 10-K IDT identifies its competitors as Analog Devices, ams, Broadcom, Cypress Semiconductor, Elmos Semiconductor, Inphi, Maxim Integrated Products, Melexis Semiconductors, Montage Technology, NXP Semiconductors, On Semiconductor, pSemi, Sensirion, Silicon Laboratories, Skyworks Solutions, ST Microsystems and Texas Instruments.

The companies, while not specifically disclosing the need for Chinese regulatory approvals in the merger agreement, generate a notable amount of business from the country. According to press reports China accounts for approximately 20% of Renesas’ revenue. For IDT, the company generates a significant amount of revenue from China, and also has a design center there.

Transaction Details

Consideration

Each share of IDT shall be automatically converted into the right to receive an amount in cash equal to $49.

Closing Conditions

The merger agreement includes customary closing conditions including required regulatory approvals:
 

• Stockholder Approval. Approval is needed from a majority of IDT stockholders.
• HSR Waiting Period. The waiting period applicable to the transaction under the HSR Act needs to expire or be terminated.
• The Specified Antitrust Authorities (which are listed in Section 7.1(c) of the Company Disclosure Letter).
• Committee on Foreign Investment in the United States, or CFIUS.
• Directorate of Defense Trade Controls 60-day notice, or ITAR/EAR.

The merger agreement includes the following customary closing conditions: majority IDT Stockholder approval, HSR, the Specified Antitrust Authority Approvals, CFIUS Approval, 60 days having elapsed following written notice to the DDTC under ITAR, no law prohibiting, no restraint, representations and warranties, covenants, no IDT MAC and no Renesas MAC.

Limitation on Divestitures/Regulatory Best Efforts

The parties’ divestiture obligations are capped at a material adverse impact on the business of Renesas and Renesas’ subsidiaries taken as a whole following the merger.

Termination Date

The termination date is June 10, 2019, provided that if all conditions have been satisfied other than HSR, all other antitrust laws approvals, CFIUS Approval and/or DDTC/ITAR notice, then the walk date is automatically extended for three months (i.e., Sept. 10, 2019), with one additional three-month extension if those conditions continue to be the only conditions that remain outstanding (i.e., Dec. 10, 2019).

Company Termination Fee

IDT will be obligated to pay Renesas a $166.4 million termination fee in the event that the DMA is terminated (i) by IDT to enter into a superior proposal or (ii) by Renesas for the IDT board affecting a company change of recommendation or for IDT’s breach of the non-solicitation provision.

IDT will also be obligated to pay Renesas a $166.4 million termination fee if the DMA is terminated for failure to obtain IDT SH approval, or for IDT’s breach, and within 12 months of termination of the DMA, IDT enters into a Competing Proposal.

Parent Termination Fee

Renesas will be obligated to pay IDT a $166.4 million reverse termination fee in the event there is a failure to obtain CFIUS approval and/or a DDTC notice condition failure, and thereafter the DMA is terminated by either party for the walk date, any law prohibiting and/or any final non-appealable restraint, or in the event the DMA is thereafter terminated by IDT for Renesas’ breach.

Material Adverse Effect

The carve-outs from the definition of any company material adverse effect look standard and include, among others, changes in the industry in which IDT and the IDT Subsidiaries operate, general economic conditions, changes in securities or credit markets, natural disasters, changes in law or regulatory conditions, the negotiation, announcement or pendency of this transaction, changes in IDT’s stock price or trading volume and the failure of IDT to meet any internal budgets, plans or forecasts of its revenues, earnings or other financial performance.

Timing

The closing of the merger is to take place on the fifth (5th) business day after the satisfaction or waiver of the last of the conditions set forth in Article VII to be satisfied or waived.

Financing

Renesas has obtained a commitment letter from MUFG Bank and Mizuho Bank pursuant to which these financing sources have agreed to provide debt financing to Renesas in the aggregate amount of $6.5 billion. The debt financing is not a condition under the DMA.

Non-solicitation/Change in Recommendation

There is a standard non-solicitation provision prohibiting IDT from soliciting or initiating a competing proposal or engaging in any discussions or negotiations with respect thereto. There is also a standard fiduciary out provision enabling IDT to furnish information to and/or engage in discussions with any third party that makes an unsolicited bona fide written competing proposal to IDT.

The IDT board is permitted to effect a company change of recommendation in connection with IDT’s receipt of a superior proposal and/or an Intervening Event. There is a standard four business day matching period for Renesas in connection with any company change of recommendation. The definition of intervening event looks standard and refers to an effect that was not known, or was not reasonably foreseeable, to the IDT board as of the date of the DMA.

Governing Law and Jurisdiction

Delaware law governs the DMA, and the parties consent to the jurisdiction of the Delaware courts.

Advisors

Morgan Stanley, BofA Merrill Lynch and Mizuho Securities served as Renesas’ financial advisors and Morrison & Foerster, and Covington & Burling and Nagashima Ohno & Tsunematsu acted as Renesas’ legal counsel.

JPMorgan served as acted as exclusive financial advisor to IDT. Latham & Watkins acted as legal counsel to IDT.

Further information on this transaction can be found HERE.

--Patrick Flavin and Lucas Ballet