SiliconBeat

Zilog, the San Jose chip maker that earlier this month turned down an offer to be acquired by Universal Electronics for $4.50 a share, filed its quarterly report Tuesday with nary a word about the proposed deal. As we wrote in a previous post, Zilog ignored a deadline set by Universal Electronics for accepting the deal by Jan. 31, saying it couldn’t possibly respond until it had released earnings for its fiscal 2008 third quarter on Feb. 1.

Investor Bryant Riley, who holds 1.1 million shares or 6.7 percent of Zilog’s stock, is not
pleased. He sent a letter to its board on Feb. 6 saying it was “frustrated” at Zilog’s
rejection of the offer.

“We have known (Zilog) since shortly after the company emerged from bankruptcy,” wrote Riley, “and we made our first investment in the company in 2003, which we sold prior to the company raising money at $12.50 per share. Since that time we have followed the company’s performance, which has been disappointing to say the least.  We invested again in 2006 after the company hit yet another “rough patch” and the stock declined below $3.”

Riley questioned whether Zilog’s board has the “same goals” as its shareholders, “given the less than 5% insider ownership and much of such ownership was in the form of stock
options.”

He also suggested that the $500,000 worth of combined compensation that its four
non-employee directors were paid was excessive and that were it “reduced by half, it may add $.45 per share in stock value.”

So far, Riley’s tone is less chilly than the one he has used with Transmeta, a company he has offered to buy and the subject of a shareholder lawsuit he has filed. “We would welcome an open dialogue with (Zilog’s) Board members as we consider our alternatives, including nominating a new slate at the upcoming annual meeting of the stockholders.

Zilog shares closed Tuesday at $3.45. They hit a 52-week high of $6.08 in May but ended 2007 down 20 percent. The day before the offer was revealed on Jan. 18, Zilog shares closed at $2.69.