MaxLinear Talks Up Entropic Marriage

Stocks Rise While Investor Groups Begin to Probe Proposal
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Execs with MaxLinear and Entropic Communications used a conference call on Tuesday afternoon to amplify the reasons why they think a proposed merger makes sense, holding that they complement each other technologically and financially and, together, will strengthen their position in the connected home.

So far, Wall Street seems to like the deal and the potential it will give the combined entity to pursue a broader addressable market. In mid-afternoon trading Wednesday, Entropic shares were up 35 cents ($12.78%) to $3.05 each, while MaxLinear shares enjoyed 24 cent rise (2.82%) to $8.76.

The financial terms of the deal value Entropic at $3.01 per share, based on MaxLinear’s closing price on February 2, so it’s already trading above that.

And the value of the deal is already receiving some static. A handful of securities and shareholder rights law firms, including Tripp Levy, Rigrodsky & Long, Johnson & Weaver, and Brower Piven, have already swooped in to announce they are investigating the proposed deal, holding that MaxLinear’s offer undervalues Entropic. Some cite analyst projections that the stock is worth at least $5 per share.

Back to the call, Dr. Kishore Seendripu, MaxLinear’s CEO, discussed the parallels and complementary assets each side brings to the table,  noting that the combined entity have several shared customers, including Arris, Cisco Systems, Comcast, Cox Communications, DirecTV, Dish Network, Time Warner Cable and Pace, among others.

“Financially, this is a great fit,” he proclaimed, presenting data showing that MaxLinear and Entropic are similar in scale and both are well capitalized -- $185 million in cash between them ($79 million from MaxLinear and $106 million from  Entropic).

While use of WiFi for video distribution continues to surge, MaxLinear still sees plenty of potential for Entropic’s Multimedia over Coax Alliance (MoCA) technology – used as a high-speed IP backbone for whole-home DVRs and home networking adapters. “We see MoCA as the connectivity technology of choice in north America from a quality of service perspective,” Seendripu said, citing MoCA’s adoption by cable operators and telco and satellite TV operators.

He also said MaxLinear intends to follow through with Entropic’s current plans for set-top systems-on-chip (SoCs) – to support current products and design opportunities, but won’t invest in the development of new set-top box SoC products.

Dr. Ted Tewskbury, Entropic’s interim president and CEO, said his company conducted an extensive review and “believes this to be best outcome for Entropic shareholders.”

While it’s business as usual for Entropic as the deal gets reviewed, Tewksbury did note that Entropic’s near-term potential is being driven by SoCs in HD-DTA devices, “which are showing a great deal of strength.” Entropic got into the set-top SoC game in 2012 via a $65 million acquisition of Trident Microsystems. At the time, it was viewed as a deal that would position Entropic to tangle with Broadcom. 

With SoCs not to be a part of the game plan long term, Seendripu downplayed such comparisons, calling it a “misconception” that a driver of Entropic acquisition is about pitting MaxLinear against Broadcom.

“We respect what Broadcom has done…they’re an incredible company to look up to, actually,” he said, adding that MaxLinear will be sticking to its core strategy to be a “world-class RF mixed signal PHY company.” 

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