Microsoft is mystery Greenfield buyer; clash over scrubbed Gilat deal; International Rectifier nixes Vishay

By Paul Deckelman

New York, Aug. 29 - Microsoft Corp. has emerged as the previously unidentified "Fortune 100 strategic buyer" who came out of left field earlier in the week and with a superior offer and caused Greenfield Online Inc. to scrap a previously agreed-upon deal for the internet survey and shopping engine company to be taken private by Quadrangle Group LLC.

Microsoft's internet rival, Google Inc., meantime sought to clarify comments made by its chief executive officer that seemed to suggest to some observers that Google and would-be ad-search partner Yahoo! Inc. will proceed with their planned agreement to work together come October, regardless of what Washington has to say about it.

Not all agreements end up harmoniously; Gilat Satellite Networks Ltd. formally terminated its previously planned deal to be taken private by an investment syndicate after that group had earlier said it would not complete the buyout on the agreed-upon terms. The two sides clashed over who's to blame.

International Rectifier Corp. said its board unanimously determined that the unsolicited, non-binding proposal by Vishay Intertechnology, Inc. to acquire the maker of computer power chips for $21.22 per share in cash is "not in the best interests of IR and its shareholders."

Wall Street finished lower, with the bellwether Dow Jones Industrial Average falling 171.63 points, or 1.47%, to end at 11,543.55. Broader market indexes likewise pointed south, with the Nasdaq composite index off 44.12 points, or 1.83%, at 2,367.52, while the Standard & Poor's 500 index declined 17.85 points, or 1.37%, to 1,282.83.

Greenfield buyer finally revealed

The mystery suitor for Greenfield Online that emerged earlier in the week, causing the Wilton, Conn.-based internet survey and comparison shopping firm to back out of its previously agreed-upon sale to Quadrangle Group finally has a name - a household name at that - and even has a very familiar face: that of the world's third-richest man, Bill Gates.

Microsoft, the Redmond, Wash.-based software giant which billionaire Gates co-founded and still employs him as chairman, announced that it has agreed to acquire Greenfield Online for $17.50 per share, or $486 million.

That price represents about a 13% improvement on the $15.50 per share price at which Greenfield had previously agreed to sell itself to Quadrangle Group, a New York-based private-equity firm that specializes in investing in high-tech and communications companies.

When it announced that it was backing out of the Quadrangle deal, Greenfield said at the time only that it had received a "superior offer" from what it described as "a Fortune 100 strategic buyer." Although the buyout firm, technically speaking, could have come back with an equal or better offer within the 72-hour window Greenfield established, most observers thought it unlikely to do so, suggesting, correctly, that it would be unable to match the deep-pocketed mystery suitor. Microsoft led the list of companies they suggested might be the then-unidentified strategic buyer, along with Time Warner Inc., Comcast Corp. and News Corp.

Upon announcing its intention to sell itself to Microsoft, Greenfield formally terminated the Quadrangle deal, acknowledging that it will pay the latter a $5 million breakup fee.

Microsoft announced its own plans for Greenfield - it plans to split its new acquisition's online survey solutions business off from its European comparison-shopping unit, Ciao, and has agreed to sell the former operation to an unidentified buyer, while focusing on Ciao, which operates price-comparison, shopping and consumer reviews sites in seven countries and languages. Its acquisition of Ciao "signals a further milestone investment for Microsoft in Europe and will see Microsoft increase its European commercial search capabilities as part of its intent to make Microsoft Live Search the premier destination for consumers looking to research and purchase goods and services online, as well as enable merchants to drive greater online sales." Both transactions - Microsoft's purchase of Greenfield and its concurrent sale of the latter's internet survey business - are expected to close in the fourth quarter. Completion of the overall Greenfield deal is not contingent upon completion of the survey-business sale.

Greenfield Online (NYSE: SRVY) rose 10 cents, or 0.58%, to $17.35, on volume of 4.8 million shares, almost nine times the usual turnover. Microsoft (Nasdaq: MSFT) lost 65 cents, or 2.33%, to end at $27.29, on volume of 50.7 million shares, about three-quarters of its usual volume.

Google treads a little more cautiously

Elsewhere among the internet giants, Google - which partnered up with Yahoo! In an advertising-search agreement back in June to help the latter company fend off Microsoft's unwanted takeover advances - still anticipates putting its partnership in operation in October. However, on Friday, the Mountain View, Calif.-based Web company sought to clarify remarks made by CEO Eric Schmidt in an interview Thursday, in which he said that Google and Sunnyvale, Calif.-based Yahoo! "are going to move forward" with the deal and adding that regulators like the Justice Department - to say nothing of several state attorneys general and the Canadian government's Competition Bureau - have "not indicated one way or the other how they're dealing with us." DOJ and several attorneys general have active probes of the deal under way.

The companies have maintained that since theirs is merely a working partnership rather than any kind of merger or sale of one to the other, regulatory approval really was not necessary - although critics, including Microsoft after it was spurned by Yahoo!, have argued that the tie-up would grant Google way too much influence over the $65 billion search-advertising market. Google already controls 60% of it and Yahoo! accounts for another 16.6%. The potentially lucrative deal calls for Google to handle a number of search queries made on Yahoo! sites in the U.S. and Canada, to better match those queries with related advertisements. The two companies would evenly divide the resulting proceeds.

Lest Schmidt's prediction that they will be doing this by October be taken by regulators as a sign that Google and Yahoo! are taking their approval for granted and not paying them enough heed, Google on Friday said through a spokesman that "we continue to cooperate with regulators as that process continues. Ultimately, we have confidence that they'll be able to conduct their review within that time period."

Google (Nasdaq: GOOG) fell by $10.49, or 2.21%, to $463.29. Volume of 3.84 million shares was slightly less than normal. Yahoo (Nasdaq: YHOO) lost 27 cents, or 1.37%, to end at $19.38, on volume of 11.2 million shares, slightly less than half of the usual activity level.

Gilat grounds buyout deal

Gilat Satellite Networks officially pulled the plug on its previously announced deal to be bought out and taken private by an investment consortium at a price of $11.40 per share, or $475 million, claiming that because the investors breached the deal they owe Gilat a termination fee. However, the investors say it was Gilat which failed to live up to the agreement.

Gilat, a Petach Tikvah, Israel based provider of satellite communications technology services, said early Friday that it had terminated the buyout agreement when the investment group failed to meet a Thursday evening deadline for completing the transaction on the original terms; it claimed that the would-be buyers had instead made "numerous verbal proposals ... all of which were substantially different from the agreed upon terms in the definitive agreement."

Since it was forced to terminate the deal because the buyers would not complete it, Gilat said the investor group owes it $47.3 million, payable by Sept. 10, under the terms of the original agreement.

But that's not the way the buyers' consortium sees it; Galactic Holdings Ltd, which consists of Gores Group LLC, a Los Angeles-based private-equity company, plus Mivtach Shamir Holdings Ltd., companies affiliated with individual investors Roy Ben-Yami, Ami Lustig and Eytan Stibbe, and DGB Investments, issued its own statement Friday, contending that they did not close the deal as scheduled because Gilat had not met the conditions outlined in the agreement, citing the company's recent financial performance. Galactic strongly denied Gilat's claim that the investor group had legally breached the agreement and now owes the company a big buyout fee, saying it was Gilat which had committed a "material breach."

It also said that even though Gilat has not satisfied the closing conditions, Galactic still wants to complete the deal and "has made a proposal that Gilat's shareholders should find very compelling and attractive in light of the decline in Gilat's operating performance." The buyers' group provided no details about that alternate offer.

Gilat Satellite Networks (Nasdaq: GILT) lost 43 cents, or 5.39%, to end at $7.55, on volume of 766,000 shares, more than twice the norm.

International Rectifier rejects Vishay

International Rectifier - which just earlier this year shook up its top management in an effort to get the El Segundo, Calif.-based semiconductor maker moving again on the right track - decided that track does not include now selling the company. So it turned down an unsolicited $21.22 acquisition offer from Vishay Intertechnology, a Malvern,. Pa.-based computer components manufacturer.

International Rectifier said that the Vishay offer "significantly undervalues the company and its future prospects when compared to the shareholder value realizable under our recently adopted strategic plan."

That plan included a management overhaul, which saw Oleg Khaykin come aboard as CEO, while Richard Dahl take over as chairman in place of company founder Eric Lidow, who retired. Michael Barrow became chief operating officer and Donald Dancer - acting CEO before Khaykin's arrival - took over as chief administrative officer.

They are trying to pull the company out of a slump that has seen its share price fall 37% so far, amid a general downturn in the computer components industry.

Raymond James analyst Steven Smigie said in a research note that the Vishay offer for Rectifier was "too low, and given that new management was brought in, the plan is to run the business, not to sell it off."

International Rectifier (NYSE: IRF) lost 42 cents, or 1.97%, to end at $20.90. Volume of 898,000 shares was a little less than usual. Vishay International (NYSE: VSH) was down 18 cents, or 1.98%, at $8.89, also on somewhat reduced volume of about 1 million shares.

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