Imagination Technologies (IMG) has reached an agreement with Canyon Bridge on the terms of a recommended cash offer. The Chinese state-backed private equity group will pay 182p a share for Imagination, valuing the beleaguered UK tech group at £550m.
There are a plethora of reasons why this offer will bring enormous relief to Imagination’s shareholders. The Hertfordshire-headquartered chip maker has wallowed since April when its largest customer, Apple, announced that it would stop outsourcing the iPhone’s graphic components. Without Apple, Imagination is an unattractive investment proposition – the US tech giant contributes about half of its revenue and even more of its profit – thus, the £550m takeover offer looks generous.
At the time of Apple’s announcement, we suggested that the best salvation for Imagination would be if a rival chipmaker or tech group made a bid for the entire company. Canyon Bridge seems to be a decent alternative. It specialises in providing equity to “enable technology companies to reach their growth potential”. Moreover, the 42 per cent premium to the closing share price before the offer was announced late on 22 September means investors who bought in after Apple pulled the plug will be well in the money.
But for those with long-term positions in Imagination, this outcome is less soothing. The £550m valuation is only just over a quarter of the group’s 2012 market capitalisation, which peaked at about £2bn. And although the offer is generous, those who had faith in the group’s technological ability may have been expecting a bidding war which could have driven the price higher. At the time of writing, a different company, which had previously expressed interest in the whole group, revealed it was no longer actively considering making an offer.
Moreover, concerns remain about the likelihood of this deal completing. Canyon Bridge is partly owned by the Chinese state and was recently barred by the US government from acquiring an American chipmaker due to state security worries. The UK government – which is already under pressure to stop foreign investors from running away with all the heavyweight British tech companies – could yet block the Imagination takeover.
That said, Canyon Bridge has attempted to sweeten the deal by pledging investment in Imagination’s Hertfordshire headquarters and promising no UK job losses. The takeover is also structured to satisfy the Americans, as it is reliant on the separate sale of Imagination’s processing unit MIPS. This sub-sector is being bought by US venture capital firm Tallwood for $65m (£48m) in cash and the deal – which doesn't require shareholder approval – is due to complete in October.
