Zarlink urges shareholders to reject efforts of hedge fund-led group

By Lisa Kerner

Charlotte, N.C., July 8 - Zarlink Semiconductor Inc. asked its shareholders for their continued support of the company's board and chief executive officer Kirk Mandy after the Concerned Shareholders of Zarlink Semiconductor Inc. filed a proxy circular nominating an alternative slate of directors.

On July 7, the group cited what it described as Zarlink's chronic underperformance over the past several years, poor financial results and loss of share value.

The group urged shareholders to use the blue proxy to vote for David Banks, Neil Carragher, Kalai Kalaichelvan, Daniel Owen and Luke Smith, as well as for management nominees Adam Chowaniec, Hubert T. Lacroix and J. Spencer Lanthier at the special meeting on July 23.

It was previously reported that the new board would move immediately to replace Mandy. Members of the Concerned Shareholders include Scott Leckie, who manages funds owning the second-largest holding in the company, as well as Banks and Owen. Together, they own or control more than 5.9% of Zarlink's shares.

According to Zarlink, the group's actions would have "immediate and lasting negative consequences for the company's growth prospects for the future."

Zarlink believes that Leckie's decision to take such action at this time is "highly disruptive and forces the company to incur unnecessary costs," a company news release said.

The company asked shareholders to vote using the yellow proxy.

Mandy noted that individuals in Leckie's group are traders, rather than long-term shareholders.

In addition, Mandy said the shareholder group's circular misstates Zarlink's financial results, product direction and strategy.

The company reaffirmed its guidance for the first quarter of fiscal 2009, with revenue expected to be between $59 million and $61 million, up 8% to 11% from the fourth-quarter fiscal 2008 revenue.

Gross margins will be 46% to 48% in the first quarter of fiscal 2009, excluding integration costs of $1.0 million to $1.5 million, according to the release.

Total research and development and selling and administrative expenses are expected to be $25 million to $26 million, or between 42% and 43% of revenue, the company said.

Zarlink reaffirmed its expectation for breakeven earnings per share.

Located in Ottawa, Zarlink designs, manufactures and distributes semiconductors in Europe, Asia Pacific, the United States and Canada.

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