Microchip-Atmel deal out; Capital One may sell portfolio in Chase deal; i2 Technologies ends JDA bid

By Cristal Cody

New York, Dec. 4 - A Microchip Technology Inc.-led acquisition of Atmel Corp. is out, at least for now, Microchip chief executive and chairman Steve Sanghi said Thursday at the Credit Suisse Technology Conference.

Any chance of a deal also is dead for i2 Technologies Inc., which said Thursday it was through waiting around for JDA Software Group Inc. and terminated the merger agreement.

One major deal did break Thursday.

Capital One Financial Corp. said it plans to buy Chevy Chase Bank in a $520 million cash and stock transaction, and one analyst said the bank also may sell Chevy Chase's loan portfolio.

Meanwhile Thursday, the markets slid as Detroit's automakers continued to plead for $34 billion in emergency aid from Congress.

The Dow Jones Industrial Average fell 2.51% to 8,376.24.

The Standard & Poor's 500 index fell 2.93% to 845.22, and the Nasdaq Composite Index fell 3.14% to 1,445.56.

Microchip-Atmel combo out

Because of ON Semiconductor Corp.'s withdrawal from the original $2.3 billion joint buyout offer, deteriorating industry conditions and "our own market intelligence, we believe Atmel's business has deteriorated substantially," Sanghi said Thursday at the conference.

"With ON's withdrawal, we no longer believe $5 a share is a long-term value for the company," he said.

However, Microchip said it continues to evaluate possible transactions with Atmel, including potential financing sources and disposition strategies for the Atmel businesses Microchip does not want to operate on a long-term basis.

Atmel representatives did not return a message for comment.

Shares of Atmel fell 5.75% to close Thursday at $2.78.

ON shares dropped 10.03% to $2.96.

Microchip shares ended the day at $17.44, down 5.47%.

Capital One takes Chevy Chase

McLean, Va.-based Capital One Financial and Chevy Chase Bank said Thursday the two have agreed to merge in a cash and stock transaction valued at about $520 million.

Capital One will buy the Bethesda, Md.-based bank for $445 million in cash and 2.56 million Capital One shares valued at $75 million, based on the closing price of Capital One's stock on Tuesday.

The transaction is subject to customary regulatory approval and is expected to close in the first quarter of 2009.

The company expects to incur $225 million of merger and integration costs.

Capital One also said it will take a net credit mark of $1.75 billion for potential losses in Chevy Chase's loan portfolio.

Scott Valentin, an analyst with Friedman, Billings, Ramsey & Co., said in a research note that the acquisition makes strategic sense but the portfolio could be divested.

"The acquisition would be in line with management's commentary following its $760 million common equity raise in late-September," he said in the note. "However, Chevy Chase is mortgage-heavy, historically an asset class COF has viewed as less attractive, which could mean a sale of the portfolio is possible, increasing the importance of marking the portfolio conservatively."

The combined company will have more than $110 billion in deposits, a managed loan portfolio of more than $159 billion and 983 branches.

The acquisition improves Capital One's value, but the deal's timing could be better "given the outlook for increasing credit losses at both COF and Chevy Chase and [a] need to husband capital," Valentin said.

Capital One shares fell 1.9% to close at $30.99, less than half its yearly high of $63.50 a share.

i2 dumps JDA

It was bumpy from the start and on Thursday, i2 Technologies announced it had terminated the $346 million merger agreement with JDA Software Group.

The company said it was looking forward to operating as a stand-alone business.

Shares of i2 fell 19.22% to close at $6.22.

The Dallas-based company said in a statement that it expects to receive the $20 million termination fee from JDA within three business days.

In terminating the deal, i2 said JDA has not provided consent to disclosure of any discussions.

JDA representatives did not return messages for comment.

Scottsdale, Ariz.-based JDA Software had delayed the deal several times as it tried to secure debt financing since the merger was struck Aug. 10.

Stockholders of i2 Technologies approved the merger with JDA in November and the deal was scheduled to close in January.

Patrick Walravens, an analyst with JMP Securities, said in a research note Thursday that with the $20 million fee pocketed, i2's net cash per share will increase to $6.02 on an as-converted basis and will increase to $1.93 on an unconverted basis.

Investing in i2 still carries several risks because of more potential debt and questions surrounding the company's ability to close deals, he said.

"Our earlier due diligence had suggested that i2 is having a hard time returning to business as usual and i2 will need some time to restart the strategic sale process," Walravens said.

JDA shares closed down 6.68% to $11.73 Thursday.

Mentioned in this article:

Atmel Corp. Nasdaq: ATML

Capital One Financial Corp. NYSE: COF

i2 Technologies Inc. NASDAQ: ITWO

JDA Software Group Inc. NASDAQ: JDAS

Microchip Technology Inc. Nasdaq: MCHP

ON Semiconductor Corp. Nasdaq: ONNN

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