An investor in Conexant Systems shares filed a lawsuit in State Court against directors of Conexant Systems over alleged breaches of fiduciary duties arising out of their attempt to sell Conexant Systems too cheaply via an unfair process to Standard Microsystems Corporation (SMSC).
On Monday, Jan. 10, 2011, Conexant Systems, Inc. (NASDAQ: CNXT) and SMSC (NASDAQ: SMSC) had announced the signing of an agreement under which SMSC will purchase all of the outstanding shares of Conexant Systems, Inc in a stock and cash transaction valued at approximately $284 million including the assumption of Conexant's net debt. Under the terms of the agreement, for each share of Conexant Systems, Inc that they own, Conexant Systems (CNTX) stockholders will receive approximately $2.25 consisting of $1.125 in cash and a fraction of a share of SMSC common stock equal to $1.125 divided by the volume weighted average price of SMSC common stock for the 20 trading days ending on the second trading day prior to closing, but in no event more than 0.04264 nor less than 0.03489 shares of SMSC common stock. The offer price represents a 19% premium to Conexant’s Friday closing price of $1.89 a share.

But the plaintiff claims the proposed acquisition appears to be extremely opportunistic and shareholders will receive an inadequate compensation.

Shares of Conexant Systems, Inc. traded in July 2010 at $2.45 thus succeeding the current offer and as high as $4.09 in April 2010 and $5.03 in February 2010, thus leaving CNXT with no premium but providing SMSC a discount. Additionally Conexant Systems, Inc. performed well in the past for its shareholders. Conexant Systems’ 52week Total Revenue ranged over the past four filing periods between $208.43million and $360.70million. Its Net Income rose over the same time frame from a substantial Net Loss of $402.46million to a Net Income of $20.23million.

Additionally according to the class action complaint the plaintiff alleges that the proposed acquisition is based on an inherently flawed process. Defendant Mr. Bilodeau, non-executive Chairman of SMSC has been a Conexant director since 2004 and a member of Conexant Systems’ audit committee and as such he is privy to Conexant Systems’ financial projections and other confidential information not available to the public shareholders, so the lawsuit. Further the board of directors of Conexant Systems, Inc. has agreed to deal protection devices such as a $7.7million termination fee, a ‘no-solicitation’, a ‘last look’ re-negotiation clause in blatant breach of its fiduciary duties to Conextant’s public shareholders that essentially foreclose the possibility that a third-party ‘white knight’ could step forward to provide Conexant shareholders with a premium for their shares.