Imagination Tech lands MIPS with $100 million offer

Reuters News
Posted: Dec 17, 2012 2:56 AM
Imagination Tech lands MIPS with $100 million offer

By Paul Sandle

LONDON (Reuters) - British chip designer Imagination Technologies on Monday beat Ceva Inc in the race to buy processing technology firm MIPS with a knockout offer of $100 million.

Imagination and its U.S. rival have been battling to buy the operating business of MIPS, a pioneer of 32-bit and 64-bit processing, since last month when a $60 million agreed deal from the British company triggered a bidding war.

Mobile chip designer Ceva, which had twice outbid Imagination, said while there was merit in buying MIPS, raising its offer again would not meet its financial objectives.

MIPS' technology is in blu-ray players, digital televisions and video games consoles such as the Sony PlayStation 2.

Imagination, whose graphics and video technology is used in Apple's iPhone, wants to buy MIPS to strengthen its hand against the likes of ARM Holdings in CPUs, the central processors in devices like routers, modems and games consoles.

Shares in Imagination were trading 3.2 percent lower at 396.3 pence by 9:01 a.m. ET, underperforming a 0.3 percent lower midcap index.

Analysts at Liberum Capital said that with net cash of $78 million, Imagination would have to borrow about $22 million for its higher offer.

"While no one likes a leveraged tech company, Imagination is a cash generative business," the broker said.

"Fundamentally, we believe Imagination's proposed acquisition of MIPS makes strategic sense. However, it faces an uphill task in making MIPS' CPU architecture relevant one again, in an increasingly ARM dominated world."

Analyst Lorne Daniel at FinnCap, meanwhile, said the fact that Imagination was clearly prepared to overpay for a loss-making business with $60 million of revenue was indicative of how important the CPU move was to its future.

California-based MIPS agreed to sell 498 patents for $350 million to a consortium of technology companies organized by patent holding company Allied Security Trust and led by chip designer ARM when it agreed the initial Imagination deal.

(Editing by James Davey and David Cowell)