SiliconBeat

Micrel started playing defense Tuesday against a growing challenge from Obrem Capital Management, an investment firm that has amassed almost 10.7 million shares of the San Jose chip maker, which represents 14.9 percent of its shares outstanding.

The company set up a”limited duration shareholder rights plan,” more colorfully known as a poison pill intended to be swallowed should some entity — say Obrem Capital — were to acquire 15 percent of Micrel’s shares outstanding.

Obrem has spent about $85.6 million to date buying its Micrel stake, paying about $8 per share on average. On March 12, when its holdings stood at 6.9 million shares, or 9.6 percent, Obrem sent a detailed letter to Micrel’s board, saying the company had “failed to create shareholder value over the last year.” (That could be said, of course, of most companies in Silicon Valley right now.)

Obrem cited a list of Micrel’s competitive strengths, including its “attractive customer
base,” “cash-rich, debt-free balance sheet,” and “solid reputation.” However, the
investor complained that the company’s manufacturing scale was too small, its “outsourcing strategy” and “cost-reduction roadmap” were “poorly developed”, and that its cost structure was “bloated”.

Obrem sees a “simple solution”: the sale of the company to a larger rival.

We’re thinking this is not sounding good for the continued employment of all of Micrel’s current workforce.

Micrel’s chief executive, Ray Zinn, defended the company in the press release it put out
Tuesday to announce the new plan, noting that Micrel has been profitable in 28 of the 29 years of its existence, while growing annual revenues in 24 of those years. Zinn also owns 11.2 million shares, or 15.6 percent of Micrel.

Micrel claims its shareholders rights plan was set up to make sure “all of (Micrel’s)
shareholders receive fair and equal treatment in the event of any unsolicited takeover of
(Micrel) and to protect shareholders from partial tender offers, open market accumulations and other abusive or coercive tactics to gain control of (Micrel) without offering an adequate price to all shareholders,” according to its release.

Under the plan, Micrel distributes to current shareholders the right to acquire preferred
shares of its stock designed to make it harder for “any unsolicited takeover” and to
“protect shareholders from partial tender offers, open market accumulations and other abusive or coercive tactics to gain control of (Micrel) without offering an adequate price to all shareholders.”

Micrel shares rose Tuesday for the tenth day in a row, and are up about 11 percent so far this year, after falling 21 percent last year.