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MONTH-IN-BRIEF (Mar 2020)

M&A Law

District of Arizona Court Finds Some Statements Actionable in Suit Over Microsemi Acquisition

By John Adgent

On March 11, 2020, the United States District Court for the District of Arizona (the “Court”) granted in part and denied in part Microchip Technology Inc.’s, a manufacturer of computer chips (“Microchip”), and certain directors and officers (collectively, “Defendants”), motion to dismiss a federal securities fraud class action suit brought by a stockholder (“Plaintiff”) on behalf of the putative class.

Plaintiff alleged that Defendants made 52 materially false statements or omissions in their communications with the public related to Microchip’s acquisition of Microsemi Corp., another chip manufacturer (“Microsemi”), for $10.15 billion, financed by $8.6 billion in new debt. Plaintiff contended that Defendants knowingly misrepresented the amount of inventory in Microsemi’s distribution channel and thus the net free cash flow available to pay the substantial debt incurred in the acquisition. According to Plaintiff, Defendants announced after the closing that Microsemi had four plus months of inventory in its distribution channel, which caused Microchip to have $110 million less of net free cash flow and higher debt leverage. As a result, Microchip was unable to pay down its debt, and Microchip common stock fell $10.67 a share.

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