After Push for M&A, Starboard Settles With ON Semiconductor

circuit board
The Jeff Smith-led activist fund reaches an agreement to add two directors to the chipmaker's board in a deal that installs at least one candidate that has gotten on boards with the help of Starboard in advance of blockbuster transactions.

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On Semiconductor Corp. (ON) on Wednesday Dec. 16, settled with Jeff Smith’s Starboard Value LP in a deal that immediately added two activist-backed directors to the chipmaker’s board following a push for M&A.

As part of the agreement, the Phoenix-based company agreed to install onto its board Greg Waters, ex-CEO of Integrated Device Technology Inc., and Bruce Kiddoo, a former CFO of Maxim Integrated Products Inc. (MXIM) and acting CFO of Broadcom Inc. (AVGO).

As part of the deal, incumbent director Emmanuel Hernandez moved to step down after 18 years on the board, which will drop to 10 members after his resignation.

The settlement emerged after ON Semiconductor on Dec. 7 installed Hassane El-Khoury as CEO, replacing the company’s founder and CEO, Keith Jackson, who announced in September that he intended to retire in 2021. El-Khoury served as CEO of Cypress Semiconductor Corp. until it was sold to Infineon Technologies AG in April.

Expect the new directors to push for M&A. Starboard Value on Oct. 8 launched a campaign with a presentation, noting that as the semiconductor industry continues to consolidate, “ON is uniquely positioned as a scaled asset trading at a discount.”

The activist fund also urged ON to shift to a “fabrication-lite” model in which other companies manufacture its chips.

Koch Industries Inc., meanwhile, run by billionaire conservative activist Charles Koch, may be interested in buying the chipmaker. On June 5, Koch Industries received approval from the Federal Trade Commission to hike its stake beyond 10%.

Waters appears to be a Starboard candidate — and he has a lot of recent M&A experience. According to relationship mapping service BoardEx, a sister company of The Deal, Waters and Starboard managing member Peter Feld served together on Integrated Device Technology’s board in 2014. In addition, Waters joined Mellanox Technologies Ltd.’s board in 2018 as part of a settlement with Starboard. In 2019, Renesas Electronics Corp. acquired Integrated Device Technology in a $6.7 billion deal and Mellanox was purchased by Nvidia Corp. (NVDA) for $6.9 billion.

Feld and Kiddoo have 20 second-degree connections, according to BoardEx.

The ON-Starboard agreement emerged well in advance of ON Semiconductor’s Feb. 19 deadline to nominate directors for its 2021 annual meeting.

ON Shares traded Friday morning at $31.55, up about 1.4% on the news of the agreement. Its shares shot up 10% to $25.64 a share in October on the news of Starboard’s campaign emerging.

Roughly 85% of ON’s chips are made in house currently, with the rest being manufactured by third-party manufacturers. ON Semiconductor has been shifting a bit towards the “fab-lite” model sought by Starboard, with recent moves to close its Rochester, N.Y., facility and put up for sale operations in Japan and Belgium.

This article originally was posted on The Deal on December 17, 2020 by Ron Orol. View the original article here.

Follow Ronald Orol on Twitter and LinkedIn.

About the author

Ronald Orol
Senior Editor at | + posts

Ronald Orol leads coverage of activist hedge fund managers, a high-profile group of corporate investors who press for blockbuster deals and were the subject of his book “Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World.” Ron produces the Activist Daily and Activist Weekly briefings, which offer exclusives, trend pieces and breaking analysis about insurgent investors and their M&A efforts. Ron also authored “Corporate Governance in the Era of Activism,” a digital handbook for CNBC’s Jim Cramer. He previously worked as a financial regulation and activism reporter at MarketWatch and Dow Jones Newswires.

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