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Shunned by Apple, Imagination Tech agrees to takeover from Chinese firm blocked by Trump over US deal

Imagination has separately agreed to the sale of its MIPS US business to California-based Tallwood Venture Capital, a contingency of the takeover, which will avoid subjecting it to a review by the Committee on Foreign Investment in the US
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Analysts at Liberum Capital said: “We, therefore, believe the sale of Imagination has a high chance of going through”

A move by US technology  giant Apple Inc (NASDAQ:AAPL) to stop the use of graphics chips made by imagination Technologies PLC (LON:IMG) has ultimately led to a £550mln takeover of the UK firm by a Chinese firm blocked from taking over a US firm a fortnight ago.

The £550mln deal for Imagination will undoubtedly raise a few eyebrows across the Atlantic given that US President, Donald Trump prevented an US $1.3bn attempt by Canyon Bridge to buy US chipmaker Lattice Semiconductor.

READ: Imagination Technologies agrees to Chinese buy-out; sells MIPS business

Canyon Bridge – which manages about $1.5bn on behalf of Yitai Capital – is a US headquartered firm founded with capital from the Chinese government.

US Treasury Secretary Steven Mnuchin had said the blocking of the  Lattice deal reflected concerns about the transfer of intellectual property, Beijing’s role in the deal,  and the US government’s use of the firm’s products.

However, Imagination has separately agreed to the sale of its MIPS US business to California-based Tallwood Venture Capital for a cash payment of US$65mln, a contingency of the takeover which will avoid subjecting it to a review by the Committee on Foreign Investment in the US -  the government panel that blocked the Lattice deal.

US sensitivity dulled

In a note to clients, analysts at broker Liberum Capital pointed out: “We believe any US sensitivity regarding the sale of Imagination to a Chinese entity would be mainly concerning MIPS, rather than PowerVR or Ensigma.”

They added: “We, therefore, believe the sale of Imagination has a high chance of going through.”

As a result, the Liberum analysts cut their price target for Imagination back to 182p from 193p to reflect the acquisition price.

In late afternoon trading, imagination shares were changing hands at 169.25p each, up 40.75p, or nearly 32%.

Further bids unlikely, but not impossible

Meanwhile analysts at Numis Securities also pointed out that Imagination’s disposal of MIPS first to a US buyer removes any potential concerns that the US government would try to block a deal

The Numis analysts said: “We do not expect any involvement of the UK government as we believe the proposed transaction is the best way to protect UK based jobs at Imagination and there are no security considerations with regards to PowerVR.”

They added: ”Given this is the result of a formal sale process, we believe it is unlikely that there could be further bids although it is not impossible.”

The analysts concluded: “While it is clearly disappointing to lose the last semiconductor business of scale from the UK listed market, we believe the agreed transaction represents a good deal for shareholders.”

And Russ Mould, investment director at AJ Bell, reiterated that view, commenting: “The deal is a very good outcome for Imagination's shareholders and provides certainty at a time when its future had been negatively impacted by Apple’s decision.”

READ: Imagination Technologies put up for sale in wake of Apple Inc dispute

Imagination’s graphics chip technology is at the heart of many mobile devices but the company was dealt a crippling blow in April this year when Apple said it planned to stop using Imagination’s intellectual property in its products, as it had developed its own graphics intellectual property that it claimed was even better than Imagination’s.

Recognising it was unlikely to win a legal battle with arguably the world’s richest company, having unsuccessfully requested information about Apple’s designs, Imagination bowed to the inevitable and put itself up for sale.

Imagination is the latest UK tech firm to be sold to an overseas company, after ARM Holdings, Britain’s biggest technology firm, was acquired by Japan’s SoftBank for £24bn last year, and Wolfson Microelectronics was acquired in 2014 by US firm Cirrus Logic.

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Article
September 17 2014

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