UPDATE 2: Tundra to be bought for $86M

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The local tech industry is on the verge of losing another stalwart, with the announcement of Gennum Corp. ( TSX:GND )'s $86-million bid to buy Tundra Semiconductor Corp.

Tundra Semiconductor's corporate headquarters in Kanata.

Ottawa-based Tundra ( TSX:TUN ), whose present guise was founded in 1995 but whose roots date back as far as the 1980s, announced Thursday that it had signed a definitive agreement to be acquired by its Burlington, Ont. competitor.

"We believe that the acquisition of Tundra will create a much stronger combined company, capable of expanding the served markets and applications for our products," said Tundra CEO Daniel Hoste in a statement. "Combined, we believe we will create a formidable competitor that is well-positioned in high-speed interconnect markets that require signal integrity."

Gennum said it would pay $4.43 in cash or 1.1575 of its common shares on a pro-rata basis for each Tundra share, valuing the latter at a 48-per-cent premium to its volume-weighted average share price on the Toronto Stock Exchange over the five days leading up to the announcement. The companies said a maximum of eight million Gennum shares and $55 million in cash would be paid out to Tundra's stakeholders, who would own

Tundra's shares closed at $3.07 on Thursday evening, while Gennum's stock had a closing price of $3.52, roughly 6.63 per cent lower than the day before. However, in the wake of the announcement, Tundra's shares soared by more than 35 per cent to open at $4.25, and Gennum also opened higher at $3.68.

Gennum said the acquisition would add new digital switch and bridge products to its portfolio and give the company a broader sales and distribution network in Asia.

As well, it indicated it would see cash savings of US$10 million, although it did not disclose how many jobs would be lost.

A Tundra spokesperson confirmed in an e-mail, however, that there would be "some redundancy in ... both organizations. "

"We anticipate that some positions will be eliminated. At this time, we do not have an exact number, " the spokesperson wrote. "Between now and when the transaction closes, Gennum and Tundra leadership teams will be working closely together to evaluate operations and resources to determine the optimal integration plan and evaluate any synergies. "

Tundra employed roughly 180 local people as of the end of last year, while Gennum, which has a Kanata design facility, has around 55 Ottawa staff.

"Through the acquisition of Tundra, Gennum is positioned to achieve its strategic and financial objectives more quickly and accelerate the development of highly differentiated, high-speed interconnect and signal integrity products," stated Gennum CEO Franz Fink, emphasizing Tundra's strong relationship with the telecommunications market as a key factor for the proposed purchase.

In an interview with OBJ, Mr. Fink said the deal was borne out of Gennum's restructuring efforts over the past two and a half years, which have included both the divestiture of its "non-core" product lines and the acquisition of companies that will help it to move ahead in the telecom, storage computing, data communications and broadcast markets on which it's now focusing.

He said he expects the newly merged companies will be able to take advantage of a combined market size of about US$2 billion that could grow by a compound rate of 20 per cent over the next five years.

Mr. Fink, who used to work with Tundra's Mr. Hoste while they were both at Motorola, stressed that Gennum remains "committed" to Ottawa, and said the company is hiring tech talent "as we speak." However, he also reiterated the two companies' statements about achieving synergies as a result of the acquisition.

"We are committed to looking across both companies to make sure we build the strongest team moving forward ... and are hopeful there will be a very balanced combination on certain levels of the organization," he said.

The deal, which is expected to close on or around June 1, has already been unanimously approved by the boards of both companies.

"As the market recovers throughout 2009 and grows in 2010, we'll come out much stronger as a company that has scale and a better position with top-tier clients," added Mr. Fink. "This combination of two strong Canadian technology companies creates a very strong global player with a deep portfolio."

Tundra, whose technology transports data between the different components of a computer system, was spun off from Terry Matthews's Newbridge Networks in 1995 and went public in 1999, but its origins go back to 1983 when former MOSAID employee John Roberts founded Calmos Semiconductor. Calmos was bought by Newbridge for an undisclosed sum in 1989.

Tundra recently reported a sharp reduction in design services revenues for its third quarter due to the cancellation of a large project during the period, leading to flat overall revenues of $14.6 million, although it did also significantly tighten up its net loss to $1.1 million or six cents per share, from $54 million or $2.73 per share a year earlier.

Tundra's shares gained more than 46 per cent to hit $4.50 by the closing bell, while Gennum was up 3.7 per cent to $3.65.

Organizations: Tundra, Gennum, TSX Toronto Stock Exchange Newbridge Networks Motorola Calmos Semiconductor

Geographic location: Ottawa, Burlington, Asia Kanata

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