Parthus Technologies and the US-Israeli company DSP Group have received a favourable ruling from the US Internal Revenue Service that will enable the firms to merge in a tax-free transaction.
The ruling clears a final pre-condition set by the two tech firms for their proposed $300 million (€298 million) merger that should pave the way for a $60 million payout to Parthus's shareholders.
Parthus said the firms would issue formal documentation to shareholders early next month and an extraordinary general meeting would be called for mid-August.
The proposed merger would create a new intellectual property firm, ParthusCeva, that would be based in the US and generate revenues of up to $75 million in 2003.
ParthusCeva would be one of the top three global intellectual property firms and count nine of the top 10 semiconductor firms among its customers. Parthus said the combined firm was expected to generate earnings before interest, tax, depreciation and amortisation of $16 million during 2003. The tax ruling is considered crucial because it means the contribution of the DSP licensing business of DSP Group to Ceva and the distribution of Ceva shares to DSP Group shareholders will be treated as a tax-free transaction for US income tax purposes.
Despite a 50 per cent fall in the value of Parthus's shares since the merger was announced in April, the structure of the deal agreed between Parthus and DSP Group would not change, said Ms Elain Coughlan, Parthus chief financial officer. But she said the fall in Parthus's share price would give a current implied value to the merged firm, ParthusCeva, of about $300 million, rather than the $500 million value that applied in April.
Parthus's share price slumped from 42 pence sterling when the the deal was announced to just 20p yesterday on the London Stock Exchange. This mirrors the experience of its competitors that have suffered from difficult conditions in the technology sector.
Under the structure of the merger, DSP Group shareholders will receive 50.1 per cent of ParthusCeva. Parthus shareholders will receive 49.9 per cent of the firm and a $60 million payout as part of a capital repayment.
DSP Group will also inject an additional $40 million into ParthusCeva, boosting its cash reserves to about $80 million.
Meanwhile, analysts and shareholders will be seeking confirmation later this week from Parthus that it will move back into profit later this year. The firm will report financial results tomorrow.
