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20 May 2008


Tower buys Jazz for $40m

Pure-play specialty silicon wafer foundry Tower Semiconductor Ltd of Migdal Haemek, near Haifa, Israel has agreed to acquire Jazz Technologies Inc of Newport Beach, CA, USA, the parent company of Jazz Semiconductor Inc (a wafer foundry focused on analog-intensive mixed-signal process technologies).

The stock-for-stock transaction valued at $40m (with each outstanding share of Jazz common stock being converted into the right to receive 1.8 Tower ordinary shares, giving Jazz stockholders about 12.4% of the combined firm). Including net debt, the total value of the transaction is about $169m. Both Jazz and Jazz Semiconductor Inc will become Tower subsidiaries. The merged company will be headed by Tower CEO Russell Ellwanger.

The acquisition creates economies of scale that allow for improved margins, reckons Ellwanger. “We will realize significant benefits and synergies, including a comprehensive process portfolio which expands our addressable market and fuels a growing and more diversified customer base with highly differentiated product platforms.”

The combined company will bring together Tower’s strength in CMOS image sensors, non-volatile memory (NVM) and RF CMOS with Jazz’s expertise in mixed-signal, power management (CMOS and BCD) and RF (RF CMOS, SiGe and BiCMOS) technologies to create what is claimed to be one of the broadest portfolios of specialty process technologies.

Tower was established in 1993 and has two fabrication plants in Israel: Fab 1 has 1-0.35 micron process technology (with a capacity of 15,000 6-inch wafer starts per month) and Fab 2 has 0.18-0.13 micron process technology (with a capacity of 30,000 8-inch wafer starts per month). As well as its fab in the USA, Jazz (which was spun off from Conexant Systems Inc in 2002) has manufacturing supply agreements for its process technologies to be used by China’s Advanced Semiconductor Manufacturing Corp Ltd and Shanghai Hua Hong NEC Electronics Co Ltd. Tower has about 1400 staff and Jazz has about 700 (with no staffing cuts currently planned).

Jazz says that the merger should enhance its ability to access capital to fund its strategic initiatives, including potential expansions into new applications, executing a more ambitious product roadmap, expanding manufacturing capacity, and expanding manufacturing capacity. The combined firm should have a capacity of 750,000 8”-equivalent wafer starts annually (making it the world’s largest specialty foundry and seventh largest pure-play foundry), but the firms’ believe this can be expanded further to over 900,000 wafers annually (about triple Jazz’s current capacity).

Combined annual revenues in 2007 are $439m. Excluding implementation costs, the firms believe that the merger could generate as much as $40m in annual gross synergies resulting from the elimination of duplicate spending and overlapping functions, improved supplier pricing, avoidance of planned expenditures, and manufacturing scale.

The agreement has been unanimously approved by the boards of directors of both firms. The transaction is expected to close in fourth-quarter 2008 (subject to the approval of Jazz’s shareholders).

See related items:

Acquicor closes $145m private placement to fund Jazz acquisition

All that Jazz: Acquicor to acquire Jazz Semiconductor

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