C-Cube shares rocket on LSI Logic deal

LSI Logic, a maker of custom semiconductors, says it has agreed to acquire the set-top box technology company for about $878 million in stock.

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LSI Logic said Monday it will snap up C-Cube Microsystems in a stock swap valued at around $878 million to boost its position in the broadband entertainment market.

Shares of C-Cube closed up $4.94, or 56 percent, at $13.75. LSI Logic closed down $2.65, or 13 percent, at $18.04.

LSI Logic makes communications and storage semiconductors for data, voice and video systems. The Milpitas, Calif.-based company had warned on March 5 that its first-quarter revenue would miss expectations. LSI Logic also said it was cutting costs and looking for ways to boost its profits and competitive position.

The acquisition of C-Cube Microsystems should do just that for the company.

The deal, which is expected to close in the company's second quarter, ending June 30, will add to LSI Logic's earnings before goodwill amortization in 2001, the company said. In January, LSI Logic had also cut its second-quarter projections but said it was expecting a rebound in the second half. First Call's current consensus projection is for earnings of 3 cents a share from the company's first and second quarters.

According to First Call's estimates, C-Cube is expected to report earnings of a penny a share and 6 cents a share for the first and second quarters, respectively. The company, also based in Milpitas, reported $265 million in revenues in 2000, and it has 600 employees.

The acquisition of C-Cube will also put LSI Logic in a position to supply technology for the so-called networked digital home. Up until now, LSI Logic's technology has been aimed at storage technologies for the enterprise market--workstation giant Sun Microsystems is the company's largest customer.

With C-Cube, it gains chip technology for digital set-top box, DVD and emerging codec applications. Codec (coder-decoder) technology includes hardware or software that converts analog signals to digital code and vice versa. The applications that C-Cube covers include personal video recording, home media servers, recordable DVD, residential gateway and streaming video.

In the transaction, each outstanding share of C-Cube common stock is to be exchanged for 0.79 share of LSI Logic common stock. The deal will be recorded under the purchase method of accounting.