CSR’s unpopular deal | FT Alphaville

CSR’s unpopular deal

If CSR, the maker of Bluetooth chips, was looking for an excuse to revise or (possibly) ditch its unpopular £418m all-share acquisition of Zoran, it has just been handed one.

Zoran, the loss-making US imaging and video technology group has just filed disappointing first quarter numbers, warning forecasts for the second quarter will be lower than expected.

Morgan Stanley takes up the story:

Zoran has published Q1 results this morning with revenues of $85m vs $83m consensus and EPS of (43)c vs (38)c consensus.
Moreover, guidance for Q2 is very weak with revenues expected to be down sequentially to $80-85m and much lower than the $96m consensus. Zoran attributed the expected shortfall in revenues to the Japan quake disruption and Cisco, which is exiting the video camera business (Flip).
The guidance for non-GAAP EPS in Q2 is disappointing as well at (40)-(43)c vs (19)c consensus.
However, Zoran expects a significant recovery in profits in Q3 and to be back to breakeven. Zoran management remained bullish on design win momentum though, in digital TVs, set-top boxes and digital cameras.

Now, many shareholders aren’t keen on this deal. While CSR needs to diversify in the face of stiff competition from the likes of Qualcomm and Broadcom, few people see this deal as the way to do it. After all, Zoran makes sensors for cheap cameras. It’s difficult to see what synergies that has with Bluetooth wireless chips.

Indeed on the day it was announced in February its CSR fell sharply — and they haven’t really recovered.

(At pixel time CSR was down 2.6p at 352.4p)

Anyway, CSR is evaluating the implication of today’s statement from Zoran:

CSR plc (“CSR”) notes the earnings statement and guidance released by Zoran Corporation (“Zoran”) today.
The basis of our proposed merger with Zoran, as announced on 21 February 2011, was the attractive combination of CSR’s connectivity and location capabilities with Zoran’s imaging and video processing as well as the strong financial case.
Feedback from our customers since announcement of the proposed merger has supported the strategic rationale for the proposed transaction. We have noted Zoran’s latest guidance and are currently evaluating the implications of these disclosures.

Note, that shareholders aren’t mentioned there. In fact, that fact that CSR issued a statement — when they didn’t have to – tells us all we need to know.

If the CSR decides to change its mind and not recommend the deal it will have to pay Zoran $12.2m.

We look forward to hearing what CSR management have to say on Tuesday when they report results. Zoran shares are unlikely to react well to this disclosure and at the very least a lower price looks warranted.

Related link:
CSR shares dive as it agrees Zoran deal – FT