UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14D-9/A
SOLICITATION/RECOMMENDATION
STATEMENT
UNDER SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment
No. 3)
Techwell, Inc.
(Name
of Subject Company)
Techwell, Inc.
(Name
of Person(s) Filing Statement)
Common
Stock, par value $0.001 per share
(Title
of Class of Securities)
87874D 10
1
(CUSIP
Number of Class of Securities)
Fumihiro
Kozato
President
and Chief Executive Officer
Techwell, Inc.
408 E. Plumeria Drive, San Jose,
California 95134
(408) 435-3888
(Name,
Address, and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of the Person(s) Filing
Statement)
With
Copies to:
Jorge del Calvo, Esq.
James J. Masetti, Esq.
Pillsbury
Winthrop Shaw Pittman LLP
2475 Hanover Street
Palo Alto, CA 94304
(650) 233-4500
o
Check the box if the filing relates
solely to preliminary communications made before the commencement of a tender
offer.
This Amendment No. 3
amends and supplements the Solicitation/Recommendation Statement on Schedule
14D-9 initially filed with the Securities and Exchange Commission (the SEC)
on March 30, 2010 (which, together with any amendments and supplements
thereto, including that certain Amendment No. 1 filed on April 7,
2010 and Amendment No. 2 filed on April 12, 2010, collectively
constitute the Schedule 14D-9) by Techwell, Inc., a Delaware corporation
(Techwell or the Company), relating to the offer (the Offer) by Navajo
Merger Sub, Inc., a Delaware corporation (Purchaser) and an indirect,
wholly-owned subsidiary of Intersil Corporation, a Delaware corporation (Intersil),
as set forth in a Tender Offer Statement filed by Intersil and Purchaser on
Schedule TO, dated March 30, 2010 (as previously filed with the SEC, the Schedule
TO), to purchase all shares of common stock, par value $0.001 per share, of Techwell
(Techwell Common Stock), that are outstanding and the associated preferred
stock purchase rights (the Techwell Rights) issued in connection with and
subject to the Rights Agreement, dated August 4, 2009, between Techwell
and Computershare Trust Company, N.A. (which Techwell Rights, together with the
shares of the Techwell Common Stock are referred to as the Shares), at a purchase
price of $18.50 per Share, net to the holder thereof in cash, without interest,
but subject to any applicable tax withholding, upon the terms and subject to
the conditions set forth in the Offer to Purchase, dated March 30, 2010,
and in the related Letter of Transmittal, copies of which are filed with the Schedule
14D-9 as Exhibits (a)(1)(i) and (a)(1)(ii), respectively. Any capitalized
terms used and not otherwise defined herein shall have the meaning ascribed to
such terms in the Schedule 14D-9.
All information in the
Schedule 14D-9 is incorporated into this Amendment No. 3 by reference,
except that such information is hereby amended to the extent specifically
provided herein.
This Amendment No. 3
is being filed to reflect certain updates as reflected below.
Item 4. The
Solicitation or Recommendation.
1. Item
4(b) of the Schedule 14D-9 (
Background and Reasons for
the Recommendation
) is hereby amended and supplemented by adding
the following additional information under the subheading entitled
Background of the Offer
:
As previously disclosed,
representatives from Deutsche Bank contacted eleven companies in 2010 to
determine if there was interest in exploring a strategic transaction with
Techwell. The eleven companies were
identified by the members of the Techwell Board based on their extensive
industry knowledge and after consultation with management and its
advisers. The Techwell Board believed
and determined that these companies would most likely be interested in
acquiring Techwell because they would see value in Techwells technology and
customer relationships and would derive greater profitability from Techwells
business than Techwell could on a standalone basis through consolidation and
because of their greater scale. The
Techwell Board determined, based on industry knowledge and after consultation
with management and its advisors, that other candidates were significantly less
likely to be interested in acquiring Techwell due to the absence or materially
lesser magnitude of these synergies. The
Techwell Board concluded that only buyers who could realize synergies similar
to those described above would be willing to pay a substantial premium above
Techwells current stock price, and therefore, determined and believed that it
would not be productive or otherwise worthwhile to contact purely financial
or non-strategic buyers, such as private equity funds.
As previously disclosed, on December 18, 2009, members
of Techwells management met with representatives from Deutsche Bank to discuss
the current status of Techwells business and began to develop a specific
process to initial communications with parties who were not likely to be
interested in purchasing Techwell, including those parties previously discussed
with the Techwell Board. One of the
items discussed during this meeting was an illustrative analysis of the maximum
price various potential strategic buyers could pay to acquire Techwell with no
future period earnings dilution to such strategic buyer (and based on Wall
Street estimates for such potential buyers) under various scenarios (with and
without hypothetical transaction synergies and using all cash and 50% cash/50%
stock acquisition currency).
As previously disclosed,
on March 6, 2010, Techwell received a written nonbinding indication of
interest from Company A to acquire Techwell for a price of $16.28 per share in
an all-cash transaction. Company A reserved the right to use up to
$50 million worth of Company A stock as part of the consideration. Company
A requested a 45-day period of exclusivity to continue discussions with
Techwell. In its indication of interest,
Company A also indicated that it would focus on retaining
2
Techwells employees by giving them an opportunity to
excel as part of a larger organization.
Company A did not specifically identify any Techwell employees in its
indication of interest.
As previously disclosed,
on March 7, 2010, Company A submitted a revised nonbinding indication of
interest with an offer price of $17.08 per share. Company A continued to
reserve the right to issue up to $50 million worth of Company A stock as
part of the consideration. Company A requested a two-week period of exclusivity
to continue discussions with Techwell.
In its revised indication of interest, Company A also continued to
indicate that it would focus on retaining Techwells employees by giving them
an opportunity to excel as part of a larger organization. Company A did not specifically identify any
Techwell employees in its revised indication of interest.
As previously disclosed,
on March 9, 2010, Techwell received a nonbinding indication of interest
from Company B, which proposed the acquisition of Techwell for an offer price
in the range of $16.50 to $17.50 per share, using a combination of cash and
Company B stock as consideration. The proposed consideration would consist of
between 75% and 80% cash and the remainder in Company B stock. Company Bs
offer was contingent and subject to Company B board approval and the
availability of financing to Company B. Company B also indicated that an
acquisition would be subject to execution of employment agreements with key
employees of Techwell. Company B did not
identify the key employees it would require to become parties to employment
agreements.
As previously disclosed
on March 9, 2010, the Techwell Board held a telephonic meeting to consider
the indications of interest received from Intersil, Company A,
Company B and Company C and the status of discussions with Company D. In addition to the matters previously
disclosed that were discussed and considered by the Techwell Board, in
evaluating the offers from Company A, Company B and Company C, all of which
contained a stock component to the consideration being offered to Techwell
stockholders, the Techwell Board, in consultation with management and its
advisors, attempted to form a judgment about the value of the stock from these
other bidders based only on publicly available information. In this context, the Techwell Board discussed
the value of potential revenue and expense synergies with these other bidders,
which could increase the value of the combined entity and allow the Techwell
stockholders to participate in this potential increase in value through
ownership of the shares of any of these bidders that would be issued as
consideration in the proposed transaction.
Although the Board did not believe it was feasible to obtain concrete
estimates of these potential synergies, it applied its judgment, after
consulting with management and its advisors, to determine that the expense
synergies would not materially impact the post-transaction value of the
combined entity with any of the bidders.
The Techwell Board further determined that any revenue synergies would
be subject to risks of execution, including the risk that the two combined
companies would not be effectively integrated.
In forming this judgment, the Techwell Board did not seek any non-public
information about the bidders. The
Techwell Board did not discuss the value of Intersils stock because the offer
from Intersil consisted entirely of cash consideration. In determining that the Intersil all-cash
offer of $18.00 per share was the highest offer price of any bidder, the
Techwell Board applied its judgment as to the value of the stock being offered
by the other bidders and the risks and uncertainties associated with a partial
stock transaction.
As previously disclosed
on March 9, 2010 and after Techwell entered into an exclusivity agreement
with Intersil, Company A sent a revised, nonbinding written indication of
interest to Techwell indicating an increase in its prior offer price to $18.28
per share and eliminating the stock component of its prior offer, resulting in
an all-cash offer that was not subject to any financing contingencies. Company
A requested a two-week exclusivity period.
Company A also continued to indicate that it would focus on retaining
Techwells employees by giving them the opportunity to excel as part of a
larger organization. Company A did not
specifically identify any Techwell employees in its revised indication of
interest.
3
As previously disclosed
on March 11, 2010, Techwell provided additional due diligence materials to
Intersil, including granting Intersil access to a virtual data room containing
detailed information about Techwell, and Intersil continued its due diligence
review of Techwell. The virtual data
room contained confidential, non-public information about Techwell, such as
information about Techwells intellectual property, customers, suppliers, board
and committee meeting minutes, employee information and certain detailed
financial information, such as a schedule of Techwells fixed assets. Techwell did not provide these additional due
diligence materials to any other interested bidders, including Company A,
Company B, Company C, Company D or Company E, because these bidders were current
and potential competitors and Techwell determined it was not in Techwells best
interest for this confidential information to be broadly disseminated.
As previously disclosed
on March 16, 2010, Dechert sent Pillsbury an initial draft of the
Agreement and Plan of Merger and a form of Tender and Voting Agreement. The initial draft of the Agreement and Plan
of Merger contained a top-up option providing Intersil an option, subject to
certain conditions and limitations, to purchase additional shares of up to that
number of Shares that, when added to the number of Shares owned by Intersil following
consummation of the proposed tender offer, would constitute one Share more than
90% of the Shares then outstanding (after giving effect to the issuance of the
Shares under such top-up option). The
top-up option provisions contained in the initial draft of the Agreement and
Plan of Merger were substantially similar to those contained in the final
Agreement and Plan of Merger executed by Techwell, Intersil and Purchaser. The initial draft of the Agreement and Plan
of Merger also contained a provision whereby Techwell would be required under
certain circumstances to pay Intersil a termination fee equal to three percent
of the total equity value of the transaction on a fully diluted basis.
As previously disclosed
on March 19, 2010, Company A sent a revised, nonbinding written indication
of interest to Techwell indicating an increase in its prior offer price to
$18.50 per share, reiterating the all-cash structure of the offer and
confirming that the offer was not subject to any financing contingencies. In
its communication, Company A expressed its willingness, to the extent Techwell
had negotiated a merger agreement with an alternative purchaser and assuming
that merger agreement contained customary terms and conditions for a
transaction of this nature, to enter into such pre-negotiated definitive
agreement with Techwell. Company A also indicated its ability to complete its
confirmatory due diligence within two days.
Company A also continued to indicate that it would focus on retaining
Techwells employees by giving them the opportunity to excel as part of a
larger organization. Company A did not
specifically identify any Techwell employees in its revised indication of
interest.
2. Item
4(b) of the Schedule 14D-9 (
Background and Reasons for
the Recommendation
) is hereby amended and supplemented by adding
the following additional information under the subheading entitled
Reasons for Recommendation
:
As previously disclosed,
one of the material factors that the Techwell Board took into account that supported
its decision to recommend that all stockholders accept the Offer and, if
required by applicable law, vote all shares in favor of the adoption of the
Merger Agreement, was Techwells operating and financial condition and its
prospects. In this context, the Techwell
Board discussed the risks associated with achieving and executing upon Techwells
current financial plan and the fact that Techwell required significant
additional investments for both acquisitions and future growth. In this discussion, the Techwell Board also
considered the potential effect on Techwells financial and strategic
flexibility if Techwell funded its growth plans in whole or in part by
incurring debt and leveraging its balance sheet. The Techwell Board discussed, among other
things, the resulting impact of the risks and potential consequences to
Techwell of being subject to and potentially falling out of compliance with
4
certain customary negative covenants and other terms that
it would likely become subject to in incurring any future debt.
3. Item
4(b) of the Schedule 14D-9 (
Background and Reasons for
the Recommendation
) is hereby amended and supplemented by adding
the following additional information under the subheading entitled
Opinion of Techwells Financial Advisor
:
With respect to the
selected publicly traded company analysis prepared by Deutsche Bank, the financial
information and valuation measurements for the Selected Companies included the
following:
·
Revenue multiples, on an estimated
calendar year 2010 basis:
·
Small Mixed Signal Companies mean of
2.0x
·
Small Mixed Signal Companies medium
of 1.6x
·
Large Mixed Signal Companies mean of
3.1x
·
Large Mixed Signal Companies medium
of 2.7x
·
Revenue multiples, on an estimated
calendar year 2011 basis:
·
Small Mixed Signal Companies mean of
1.8x
·
Small Mixed Signal Companies medium
of 1.5x
·
Large Mixed Signal Companies mean of
2.9x
·
Large Mixed Signal Companies medium
of 2.5x
·
EPS multiples, on an estimated
calendar year 2010 basis:
·
Small Mixed Signal Companies mean of
18.0x
·
Small Mixed Signal Companies medium
of 17.5x
·
Large Mixed Signal Companies mean of
15.5x
·
Large Mixed Signal Companies medium
of 13.9x
·
EPS multiples, on an estimated
calendar year 2011 basis:
·
Small Mixed Signal Companies mean of
16.9x
·
Small Mixed Signal Companies medium
of 15.7x
·
Large Mixed Signal Companies mean of
14.0x
·
Large Mixed Signal Companies medium
of 12.3x
With respect to the
selected precedent transaction analysis prepared by Deutsche Bank, the
financial multiples for the Selected Transactions included the following:
·
Revenue multiples for the last twelve
months:
·
Mean of 2.6x
·
Medium of 1.8x
·
Revenue multiples for the next twelve
months:
·
Mean of 2.1x
·
Medium of 1.6x
With respect to the
discounted cash flow analysis prepared by Deutsche Bank, Deutsche Bank
calculated the discounted cash flow values for Techwell as the sum of the net
present values of (i) the estimated unlevered free cash flows that Techwell
will generate for the second half of calendar year 2010 and calendar years 2011
through 2015, plus (ii) the terminal value of Techwell at the end of such
period.
5
The terminal value of Techwell was calculated based on
the perpetuity method. Deutsche Bank used discount rates ranging from 13.5% to
14.5% and perpetuity growth rates ranging from 3.0% to 5.0%. Deutsche Bank derived
such range of discount rates by utilizing a weighted average cost of capital
analysis based on certain financial metrics for Techwell and the Selected
Companies and such perpetuity growth rates based on its judgment of the
long-term growth rates in the semiconductor and analog semiconductor industries
as supported by third party research.
As
previously disclosed, as compensation for Deutsche Banks services in
connection with the Transaction, Techwell agreed to pay Deutsche Bank a
customary fee upon delivery of its opinion (the Opinion Fee) and a customary
fee if the Transaction is consummated (the Transaction Fee) (against which
the opinion fee will be credited). The
Opinion Fee that Techwell agreed to pay Deutsche Bank is a cash fee of $1.0
million and the Transaction Fee that Techwell agreed to pay Deutsche Bank is a
cash fee estimated to be $7.9 million (against which the opinion fee will be
credited).
Item 8. Additional Information
4. Section (vii) of
Item 8 of the Schedule 14D-9 (
Projected Financial
Information
) is hereby amended and supplemented by adding the following
additional information:
In its quarterly
earnings releases, Techwell regularly discloses its projected revenue for its
next quarterly period. The following
table sets forth the quarterly projections that Techwell provided in 2009 and
to date in 2010:
Quarterly
Period
|
|
Projected Revenue
|
|
Actual Revenue
|
First Quarter 2009
|
|
$10 million to
$11 million
|
|
$10.3 million
|
Second Quarter 2009
|
|
$11 million to
$12 million
|
|
$12.0 million
|
Third Quarter 2009
|
|
$16 million to
$17 million
|
|
$18.0 million
|
Fourth Quarter 2009
|
|
$21 million to
$23 million*
|
|
$22.8 million
|
First Quarter 2010
|
|
$19.5
million to $20.5 million
|
|
Pending**
|
* In its quarterly
earnings release issued on October 29, 2009, Techwell projected quarterly
revenue for the fourth quarter of 2009 to be between $19 million and $20
million. Techwell revised its projected
quarterly revenue for the fourth quarter of 2009 in a press release issued on November 18,
2009 to be between $21 million and $23 million.
** Techwell intends to issue a written earnings
release with its preliminary, unaudited financial results for the first quarter
of 2010 on April 21, 2010. Techwells
financial results will also be contained in a Current Report on Form 8-K
to be filed with the SEC.
Techwells management
provided, at the request of Deutsche Bank and solely for the purpose of
facilitating Deutsche Banks preparation of its discounted cash flow analysis,
which analysis is described in more detail above in Opinion of Techwells
Financial Advisor, financial projections for the second half of calendar year
2010 and calendar years 2011 through 2015.
These financial projections were not approved by the Techwell
Board. These financial projections
reflect numerous estimates and assumptions made by management with respect to
industry performance, general business, economic, regulatory, market and
financial conditions, including industry analyst forecasts about the cyclical
nature of the semiconductor industry and managements estimates on the
potential impact that fluctuations in the industry may have on Techwell, as
well as matters specific to Techwells business.
5. Section (ix) of
Item 8 of the Schedule 14D-9 (
Legal Proceedings
Regarding the Offer
) is hereby amended and supplemented by adding
the following additional information:
6
On April 19, 2010, Techwell entered into a
memorandum of understanding with plaintiffs and the other defendants to settle
the class action lawsuit,
Mike Tamashiro v. Techwell, Inc.,
et al.
Under the terms of the memorandum of understanding,
Techwell, the other named defendants and the plaintiffs have agreed to settle
the lawsuit, subject to court approval. As part of the settlement, the
defendants deny all allegations of wrongdoing and deny that the previous
disclosures were inadequate but Techwell agreed to make available certain
additional information to its stockholders, which is set forth above under the
subheadings
Background
of the Offer
in Item 4 The Solicitation or Recommendation,
Reasons for
Recommendation
in Item 4 The Solicitation or
Recommendation,
Opinion
of Techwells Financial Advisor
in Item 4 The
Solicitation or Recommendation, and
Projected Financial
Information
in Item 8 Additional Information, in this
Schedule 14D-9. The memorandum of understanding further contemplates that the
parties will enter into a stipulation of settlement. The stipulation of
settlement will be subject to customary conditions, including court approval
following notice to members of the proposed settlement class. If finally
approved by the court, the settlement will resolve all of the claims that were
or could have been brought on behalf of the proposed settlement class in the
action being settled, including all claims relating to the Offer, the Merger,
the Merger Agreement, the adequacy of the merger consideration, the
negotiations preceding the Merger Agreement, the adequacy and completeness of
the disclosures made in connection with the Offer and the Merger and any actions
or inactions of the defendants in connection with, or related in any way to,
the Offer, the Merger or the Merger Agreement, including any alleged breaches
of the fiduciary duties of any of the defendants, or the aiding and abetting
thereof. If the court does approve of the settlement after a notice period,
then all public stockholders who did not elect to opt out of such settlement
will be bound thereby.
In addition, in connection with the settlement and as
provided in the memorandum of understanding, and subject to approval by the
court, Techwell or its insurer will pay to plaintiffs counsel for their fees
and expenses an amount not to exceed $300,000. This payment will not affect the
amount of consideration to be paid to stockholders of Techwell in connection
with the Offer and the subsequent Merger. Furthermore, any payment is also
conditioned on the Offer being consummated so Techwells stockholders will not
indirectly bear such payment.
Under the terms of the Merger Agreement, the
settlement is subject to the approval of Intersil, which may not be
unreasonably withheld, conditioned or delayed. Intersil has given its approval
to the settlement described by the memorandum of understanding.
Techwell
and the other defendants maintain that the lawsuit is completely without merit.
Nevertheless, in order to avoid costly litigation and eliminate the risk of any
delay to the closing of the Offer and subsequent Merger, and because the only
effect of the settlement on the stockholders is to provide additional
disclosure, the defendants have agreed to the settlement contemplated in the
memorandum of understanding.
7
SIGNATURE
After due inquiry and to
the best of my knowledge and belief, I certify that the information set forth
in this statement is true, complete and correct.
|
|
TECHWELL,
INC.
|
|
|
|
|
|
|
Date: April 19,
2010
|
|
/s/
Mark Voll
|
|
|
|
|
|
Mark Voll
|
|
|
Vice President of
Finance and Administration and Chief Financial Officer
|
8
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