Zoran Targets Broadcom With Microtune Buy

Digital set-top and TV chipmaker Zoran Corp. (Nasdaq: ZRAN) is putting Broadcom Corp. (Nasdaq: BRCM) on notice after inking a $166 million for Microtune Inc. (Nasdaq: TUNE), a key supplier of silicon tuners for Docsis cable modems and set-tops.
Zoran plans to integrate Microtune's silicon tuners into its lineup of system-on-chips (SoCs) for digital TVs, set-tops, and DVD players. It's a strategic play that could put Zoran on better competitive footing with Broadcom, which makes its own silicon tuners.
The deal will "strengthen our position in the set-top box market, where we have been intensifying our focus," Zoran president and CEO Levy Gerzberg said on a conference call Wednesday morning. "For us, it was a very natural area for expansion."
Zoran already competes with Broadcom in the Digital Terminal Adapter (DTA) chipset market, supplying silicon to vendors such as Evolution Digital LLC.
"I think it's going to have a big impact on the competitive landscape, because there hasn't been a lot of [cable set-top] competition for Broadcom," says Heavy Reading senior analyst Alan Breznick, noting that the deal might also help Zoran jump-start its flagging DTV business.
Where's Intel?
The deal comes as a bit of a surprise. Intel Corp. (Nasdaq: INTC), which is in the process of buying Texas Instruments Inc. (NYSE: TXN)'s cable modem business, was viewed as a potential Microtune suitor. Intel could still complete the tuning piece of its video gateway puzzle by sweetening a bid for Microtune or by trying to buy MaxLinear Corp. . (See What's Intel's Next Move? and Intel Snares TI's Cable Modem Business .)
Microtune, founded in 1996, has been in the silicon tuner game longer than MaxLinear but sports the smaller market cap of the two. Microtune also makes tuners for digital televisions, but most of its revenues still come from the cable set-top and cable modem markets.
Microtune president and CEO Jim Fontaine estimated that his company currently has 85 to 95 percent of the Docsis 3.0 silicon tuner market, but acknowledged that Broadcom, which entered the Docsis 3.0 chipset market later, is starting to catch up.
Fontaine also downplayed concerns that Microtune's longstanding Docsis modem relationship with TI could be strained because Zoran's and Intel's latest deals put them in closer competition in the cable set-top market. "It makes good partners when you have a common enemy in terms of Broadcom," he said on today's call. "Certainly we both need each other to compete in the marketplace."
Deal static
The deal would have Zoran paying $2.92 in cash for each share of Microtune's common stock, a 19 percent premium over Microtune's Sept. 7 closing price. The companies hope to close the deal by mid-November. Microtune has 262 employees, and it's not yet known how many would join Zoran. (See Zoran to Buy Microtune.)
But the deal has already hit a bump in the road. Law firm Levi & Korsinsky is investigating whether the Microtune board failed to adequately shop the company before coming to terms with Zoran. Two others -- The Briscoe Law Firm and Finkelstein Thompson LLP -- are investigating the fairness of the deal, noting that at least one analyst has set a target price of $5 per share on Microtune.
Microtune shares were up 18.83 percent, to $2.93 each, on the news in midday trading Wednesday. The opposite was true for Zoran -- its shares fell 7.42 percent, to $2.93.
— Jeff Baumgartner, Site Editor, Light Reading Cable